Part A. Why should a detailed knowledge of counter-trades be part of international marketers training package on pricing methods? What are the disadvantages of Part A. Why should a detailed knowledge of counter-trades be part of international marketers training package on pricing methods? What are the disadvantages of using counter-trades to the international marketing firm compared to more conventional pricing arrangements? Discuss. Several global phenomena like substantial industrial competition, dynamic process of internationalization and globalization and fast-tracking of technological innovations are among the factors that affect the global marketing and its related operations. With these phenomena that create significantly great impacts in all economies, there is a need to identify the most suitable marketing solution in order to cope up with such emerging effects – beneficial or destructive – not only to the marketing process but to the international firms in general. Marketing can be considered as one of the most important element underpinning successful business creation ( 1994). Perhaps because of its complex applications, marketing have been defined in a variety of ways (1988). The marketing concept was first promulgated in the late 1950’s ( 1991; 1990). The importance of marketing concept incorporates oft-repeated elements such as the idea of customer orientation, integrated marketing efforts, and resultant profitability among others. Today, more and more people and organizations are trying to be recognized in the business arena by using marketing as their core competitive identity. With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using different strategies that enhanced their competitiveness. But the case is different in the aspect of international marketing particularly among trading countries. The knowledge that every marketer holds is important in order to deliver satisfactory marketing results. In international marketing, understanding global marketing principles is not enough to survive the highly dangerous competition. On this case, the concept of counter-trade is illuminated. Counter-trade To quote (1998), “Countertrade is a global phenomenon that involves interaction between parties in different countries and is driven by reciprocity.” There have been numerous definitions of counter-trade. In this paper, several authors are quoted to give an idea on the key descriptions of the term. (1988,), in his marketing rationale of counter-trade describe it as “various forms of reciprocal international trade whereby a party selling a products) in turn commits itself to assist the buyer in moving his products.” The U.S. Department of Commerce defines it as a variety of trade arrangements in which a seller provides a buyer with products and agrees to a reciprocal purchasing obligation with that buyer (cited in 1997). (2004) considers it as a generic term that refers to any transaction involving a partial or full payment of goods instead of money. One of the most interesting features of counter-trades is its unique ability to take place and initiate close connection among countries even in there are varying political and economic differences existing among them. The requirements of counter-trade are typically not intended for centrally planned economies but also on a large number of developing countries. The trend is very much enforced and encouraged. In counter-trades, the most important thing to consider is the overall economic consequence of the allied transaction (1988). In the same manner, there are variables of counter-trade as identified by (1998), which include size of transaction, products countertraded, groupings of countries involved, and type of countertrade. The size of transaction must be large enough or containing large value so that it is worthwhile. Countertrade negotiations are complex and time-consuming. It is also important to consider what types of products are to be countertraded. For the past decades, most products originate from highly industrialized nations in Europe and the Americas (North). Countertraded products are based on the nature of economies in each participating country (initiating and responding countries) and these products might be different. The grouping of countries involved is also important. For example, the former centrally planned economies of the Eastern bloc are considered to have the most frequent involvement in countertrade. However, there is an increased involvement of the low-income developing countries and a decline among developed countries due to their disapproval of the given practice. The types of countertrade are barter, counterpurchase, offset, and buy-back or compensation. These are outlined and discussed on the next part of the paper. It is then important that a detailed knowledge of counter-trades is included in the training package of international marketers particularly on pricing methods because this will help them device pricing strategies, anticipate changes in pricing patterns, and ensure a competitive position in the market based on pricing strategy. Being the most powerful tool in marketing, price is identified following the company’s established goals and objectives. These goals range from enhancing the market share of the products, improving the demands in the target markets, to extending the sales at an even rate for one whole day, week, month, or year. Pricing is utilized in several ways namely (1) to increase unit sales so that resources of the firm; (2) to restrict sales, or limit the quantities demanded per unit time;(3) to make the market less attractive to actual or potential competitors; and (4) to attract buyers so that they will buy other items once the transaction has begun (Hitt et al. 2003). In this paper, it is advocated that the core marketing principles are not properly applied in the case of counter-trades. There is a difficulty of application on the case of marketing mix particularly on pricing. It also affects the strategic 3Cs concept including the company, the customer, and the competition as well as the process of formulating a standardized marketing strategy and plan. In relation to marketing plan, marketing mix includes both short term and long term strategies makes for a more profitable marketing mix. Long term strategies build brand/company awareness and give sales revenue a permanent, gradual boost. Short term strategies create a temporary, immediate revenue boost by giving buyers an incentive to purchase. By implementing both long and short term strategies, you can attend to immediate sales goals while building your business reputation and goodwill ( 2004). Furthermore, it is also a factor in effectively using limited marketing resources, identifying unique market niches, improving profitability and helping to retain consumer loyalty. In marketing, there is clear definition of the market. On the case of the strategic 3Cs, the company must be able to identify the type of business, product or service offering, and the customers. The customers’ or the target market’s wants and needs are the basis of marketing strategy and objectives ( 2000). In countertrade, customers are the traders from both parties involved. Also, the basis for the market categorizations of customers includes demographic characteristics, geographical location, consumer behavior, and psychographic characterizations (2001). In countertrading, the basis includes the variables – size of transaction, products countertraded, groupings of countries involved, and type of countertrade. According to (2000), competition is important since it affects the success of a business venture and that competition is more than just producing and distributing products and services that matches the needs of the consumers. Through an effective and efficient competitive advantage strategy, the organization will be able to reach its prescribed objectives and continuously operate in the chosen field of industry and at the same time earning more profit and expanding its operations. In countertrade, competition is not actually realistic as compared to what is exists in the global marketplace but to some extent observable. The marketing stimuli often consist of the four Ps of marketing: product, price, place and promotion while the other stimuli may include economic, technological, political and cultural factors which exist in the marketing environment. This may also appear in countertrade. The marketing stimuli necessitate the most effective strategy and plan. Marketing strategy and plan is the fundamental groundwork of marketing plans designed to achieve measurable marketing objectives (2003). It is given that a good strategy in marketing encompasses the organization’s marketing goals, policies, and action cycle. With this fact, strategy is the foundation of the marketing activity. In countertrading, strategy and plan seems vague yet the participating parties may utilize any. Meanwhile, the disadvantages of using counter-trades to the international marketing firm compared to more conventional pricing arrangements include a rigid, slower, and more costly way of marketing as compared to regular international business traditions; most offered products do not sell easily and may be considered for discarding; it neglects trade restrictions and tolerates the unfairness of its requirements; and many others (2004;1998;1988). To illustrate these disadvantages, some organizations involved in countertrading see it as a nuisance rather than opportunity. But then again, the purposes of countertrade in the perspective of marketing include the following: In the case of pricing, countertrading is an instrument for price discrimination. It is illustrated on the case that if only different markets can be successfully divided into several units and subsequent resale of commodities is prevented, then countertrade can conceal eventual discount to specific merchandisers as well as buyers ( 2004). With the given importance of some marketing features and since countertrade includes conditional arrangement (1994), it is highly recommended that a detailed knowledge of counter-trades must be included in the training package of international marketers particularly on pricing methods because the marketing process is highly progressive and purposive. Part B. Outline and discuss four types of counter-trade agreement and demonstrate how each of them can be used by marketing management in a particular overseas "pricing” agreement. These types of countertrade can often be used in larger or transnational firms as an avoidance mechanism to overcome trade barriers and national regulations that leads to the reduction of potential corporate profits. Whereas, it overcome trade barriers and leading to profit maximization through transfer pricing, evasion of antidumping rules, and tax minimization (1998) and offload poor quality goods, or push products in world excess supply (2004). The four (4) most common types of countertrade agreement are barter, offset, counterpurchase, and buy-back or compensation. · Barter, according to (2004), is the oldest form of transaction. It is the direct transfer of goods or services or both between parties without monetary exchange. This is also similar to equal or offsetting value. The most frequent problem encountered in this transaction is the waiting time to receive the goods, the possibility of receiving goods that are not of potential use by the other party or of lesser than the expected value. This is perfectly demonstrated during the earlier colonial years wherein galleon ships travels to exchange goods in other countries. In today’s application, barter is not much utilized. · Offset is commonly used in the military trading for the purpose of making major purchases of military goods. This is the best way to illustrate this type of countertrade. This is also similar to counterpurchase but some or 100% of the counterpurchase obligation can be offset by buying from any company in the foreign country ( 2004). Countries with centrally planned economies are the usual participants. In offset agreement, the pricing strategy is based on consensus whereby the supplier of a product is asked to assist the buyer in exporting it based on a specific price. This type fosters certain economic goals. Pricing is absolutely critical. · Counterpurchase is a perfect case of reciprocal buying agreement ( 2004) wherein an exchange of goods between two parties is based on the use of two contracts in an agreement to mutually supply goods or services and to purchase all goods in cash. The fulfillment of their mutual sales obligations is defined over specified time duration. In terms of pricing, both parties enter into a formal written agreement with each other relating to pricing policies. The pricing decisions are expected to have a direct impact on the volume of the profits. · Buy-back or compensation includes an agreement between a company that will provide a plant or supply technology, equipment, and any other technical advice to another company. In return, it takes a portion or percentage of the output from the provided aid as payment. This fosters long-term relations among participating bodies. In pricing, legal and regulatory environments are involved particularly in global companies. It is because prices of products or goods sold in foreign markets are considerably higher in contrast to the domestic markets. In here, pricing policy is governed by terms of sale like in other types of countertrade agreements. There are also some other types of countertrade agreements like tolling and switch trading. However, these are less used and specialized in nature. All in all, these types of countertrade agreement are based on the idea of reciprocal exchange of goods based on agreed conditions and requisites. In terms of pricing, it is used in pricing discrimination toward economic gains favorable to both parties involved. In conclusion, countertrade is global in nature. It is conducted in all or most countries and it features in trade involving numerous industries including oil, basic metals, armaments, vehicles, industrial machinery, computers, paper, chemicals, furniture, food, and clothing. But because of its complexity, reciprocity and government involvement, countertrades should be well-thought before initiating any of its types. On this paper, it is advocated that a detailed knowledge of counter-trades must be included in the training package of international marketers, particularly on pricing methods because of the nature of countertrading and the marketing process itself is highly progressive and purposive. Since price and pricing is critical in marketing, it should always be decided appropriately. This is to ensure unique, direct and effective marketing process.
Several global phenomena like substantial industrial competition, dynamic process of internationalization and globalization and fast-tracking of technological innovations are among the factors that affect the global marketing and its related operations. With these phenomena that create significantly great impacts in all economies, there is a need to identify the most suitable marketing solution in order to cope up with such emerging effects – beneficial or destructive – not only to the marketing process but to the international firms in general. Marketing can be considered as one of the most important element underpinning successful business creation ( 1994). Perhaps because of its complex applications, marketing have been defined in a variety of ways (1988). The marketing concept was first promulgated in the late 1950’s ( 1991; 1990). The importance of marketing concept incorporates oft-repeated elements such as the idea of customer orientation, integrated marketing efforts, and resultant profitability among others. Today, more and more people and organizations are trying to be recognized in the business arena by using marketing as their core competitive identity. With this objective, these organizations had been able to competently and effectively adapt to the situation in the market place by using different strategies that enhanced their competitiveness. But the case is different in the aspect of international marketing particularly among trading countries. The knowledge that every marketer holds is important in order to deliver satisfactory marketing results. In international marketing, understanding global marketing principles is not enough to survive the highly dangerous competition. On this case, the concept of counter-trade is illuminated.
Counter-trade
To quote (1998), “Countertrade is a global phenomenon that involves interaction between parties in different countries and is driven by reciprocity.” There have been numerous definitions of counter-trade. In this paper, several authors are quoted to give an idea on the key descriptions of the term. (1988,), in his marketing rationale of counter-trade describe it as “various forms of reciprocal international trade whereby a party selling a products) in turn commits itself to assist the buyer in moving his products.” The U.S. Department of Commerce defines it as a variety of trade arrangements in which a seller provides a buyer with products and agrees to a reciprocal purchasing obligation with that buyer (cited in 1997). (2004) considers it as a generic term that refers to any transaction involving a partial or full payment of goods instead of money. One of the most interesting features of counter-trades is its unique ability to take place and initiate close connection among countries even in there are varying political and economic differences existing among them. The requirements of counter-trade are typically not intended for centrally planned economies but also on a large number of developing countries. The trend is very much enforced and encouraged. In counter-trades, the most important thing to consider is the overall economic consequence of the allied transaction (1988).
In the same manner, there are variables of counter-trade as identified by (1998), which include size of transaction, products countertraded, groupings of countries involved, and type of countertrade. The size of transaction must be large enough or containing large value so that it is worthwhile. Countertrade negotiations are complex and time-consuming. It is also important to consider what types of products are to be countertraded. For the past decades, most products originate from highly industrialized nations in Europe and the Americas (North). Countertraded products are based on the nature of economies in each participating country (initiating and responding countries) and these products might be different. The grouping of countries involved is also important. For example, the former centrally planned economies of the Eastern bloc are considered to have the most frequent involvement in countertrade. However, there is an increased involvement of the low-income developing countries and a decline among developed countries due to their disapproval of the given practice. The types of countertrade are barter, counterpurchase, offset, and buy-back or compensation. These are outlined and discussed on the next part of the paper.
It is then important that a detailed knowledge of counter-trades is included in the training package of international marketers particularly on pricing methods because this will help them device pricing strategies, anticipate changes in pricing patterns, and ensure a competitive position in the market based on pricing strategy. Being the most powerful tool in marketing, price is identified following the company’s established goals and objectives. These goals range from enhancing the market share of the products, improving the demands in the target markets, to extending the sales at an even rate for one whole day, week, month, or year. Pricing is utilized in several ways namely (1) to increase unit sales so that resources of the firm; (2) to restrict sales, or limit the quantities demanded per unit time;(3) to make the market less attractive to actual or potential competitors; and (4) to attract buyers so that they will buy other items once the transaction has begun (Hitt et al. 2003).
In this paper, it is advocated that the core marketing principles are not properly applied in the case of counter-trades. There is a difficulty of application on the case of marketing mix particularly on pricing. It also affects the strategic 3Cs concept including the company, the customer, and the competition as well as the process of formulating a standardized marketing strategy and plan. In relation to marketing plan, marketing mix includes both short term and long term strategies makes for a more profitable marketing mix. Long term strategies build brand/company awareness and give sales revenue a permanent, gradual boost. Short term strategies create a temporary, immediate revenue boost by giving buyers an incentive to purchase. By implementing both long and short term strategies, you can attend to immediate sales goals while building your business reputation and goodwill ( 2004). Furthermore, it is also a factor in effectively using limited marketing resources, identifying unique market niches, improving profitability and helping to retain consumer loyalty. In marketing, there is clear definition of the market. On the case of the strategic 3Cs, the company must be able to identify the type of business, product or service offering, and the customers. The customers’ or the target market’s wants and needs are the basis of marketing strategy and objectives ( 2000). In countertrade, customers are the traders from both parties involved. Also, the basis for the market categorizations of customers includes demographic characteristics, geographical location, consumer behavior, and psychographic characterizations (2001). In countertrading, the basis includes the variables – size of transaction, products countertraded, groupings of countries involved, and type of countertrade. According to (2000), competition is important since it affects the success of a business venture and that competition is more than just producing and distributing products and services that matches the needs of the consumers. Through an effective and efficient competitive advantage strategy, the organization will be able to reach its prescribed objectives and continuously operate in the chosen field of industry and at the same time earning more profit and expanding its operations. In countertrade, competition is not actually realistic as compared to what is exists in the global marketplace but to some extent observable. The marketing stimuli often consist of the four Ps of marketing: product, price, place and promotion while the other stimuli may include economic, technological, political and cultural factors which exist in the marketing environment. This may also appear in countertrade. The marketing stimuli necessitate the most effective strategy and plan. Marketing strategy and plan is the fundamental groundwork of marketing plans designed to achieve measurable marketing objectives (2003). It is given that a good strategy in marketing encompasses the organization’s marketing goals, policies, and action cycle. With this fact, strategy is the foundation of the marketing activity. In countertrading, strategy and plan seems vague yet the participating parties may utilize any.
Meanwhile, the disadvantages of using counter-trades to the international marketing firm compared to more conventional pricing arrangements include a rigid, slower, and more costly way of marketing as compared to regular international business traditions; most offered products do not sell easily and may be considered for discarding; it neglects trade restrictions and tolerates the unfairness of its requirements; and many others (2004;1998;1988). To illustrate these disadvantages, some organizations involved in countertrading see it as a nuisance rather than opportunity. But then again, the purposes of countertrade in the perspective of marketing include the following:
- It is an instrument of economic policy development among governments.
- It prevents or hedges in opposition to future risks.
- It is a way of establishing synergistic alliances.
- It is a mode for transferring marketing expertise.
- It is a unique way of direct marketing.
In the case of pricing, countertrading is an instrument for price discrimination. It is illustrated on the case that if only different markets can be successfully divided into several units and subsequent resale of commodities is prevented, then countertrade can conceal eventual discount to specific merchandisers as well as buyers ( 2004). With the given importance of some marketing features and since countertrade includes conditional arrangement (1994), it is highly recommended that a detailed knowledge of counter-trades must be included in the training package of international marketers particularly on pricing methods because the marketing process is highly progressive and purposive.
Part B. Outline and discuss four types of counter-trade agreement and demonstrate how each of them can be used by marketing management in a particular overseas "pricing” agreement.
These types of countertrade can often be used in larger or transnational firms as an avoidance mechanism to overcome trade barriers and national regulations that leads to the reduction of potential corporate profits. Whereas, it overcome trade barriers and leading to profit maximization through transfer pricing, evasion of antidumping rules, and tax minimization (1998) and offload poor quality goods, or push products in world excess supply (2004). The four (4) most common types of countertrade agreement are barter, offset, counterpurchase, and buy-back or compensation.
· Barter, according to (2004), is the oldest form of transaction. It is the direct transfer of goods or services or both between parties without monetary exchange. This is also similar to equal or offsetting value. The most frequent problem encountered in this transaction is the waiting time to receive the goods, the possibility of receiving goods that are not of potential use by the other party or of lesser than the expected value. This is perfectly demonstrated during the earlier colonial years wherein galleon ships travels to exchange goods in other countries. In today’s application, barter is not much utilized.
· Offset is commonly used in the military trading for the purpose of making major purchases of military goods. This is the best way to illustrate this type of countertrade. This is also similar to counterpurchase but some or 100% of the counterpurchase obligation can be offset by buying from any company in the foreign country ( 2004). Countries with centrally planned economies are the usual participants. In offset agreement, the pricing strategy is based on consensus whereby the supplier of a product is asked to assist the buyer in exporting it based on a specific price. This type fosters certain economic goals. Pricing is absolutely critical.
· Counterpurchase is a perfect case of reciprocal buying agreement ( 2004) wherein an exchange of goods between two parties is based on the use of two contracts in an agreement to mutually supply goods or services and to purchase all goods in cash. The fulfillment of their mutual sales obligations is defined over specified time duration. In terms of pricing, both parties enter into a formal written agreement with each other relating to pricing policies. The pricing decisions are expected to have a direct impact on the volume of the profits.
· Buy-back or compensation includes an agreement between a company that will provide a plant or supply technology, equipment, and any other technical advice to another company. In return, it takes a portion or percentage of the output from the provided aid as payment. This fosters long-term relations among participating bodies. In pricing, legal and regulatory environments are involved particularly in global companies. It is because prices of products or goods sold in foreign markets are considerably higher in contrast to the domestic markets. In here, pricing policy is governed by terms of sale like in other types of countertrade agreements.
There are also some other types of countertrade agreements like tolling and switch trading. However, these are less used and specialized in nature. All in all, these types of countertrade agreement are based on the idea of reciprocal exchange of goods based on agreed conditions and requisites. In terms of pricing, it is used in pricing discrimination toward economic gains favorable to both parties involved. In conclusion, countertrade is global in nature. It is conducted in all or most countries and it features in trade involving numerous industries including oil, basic metals, armaments, vehicles, industrial machinery, computers, paper, chemicals, furniture, food, and clothing. But because of its complexity, reciprocity and government involvement, countertrades should be well-thought before initiating any of its types. On this paper, it is advocated that a detailed knowledge of counter-trades must be included in the training package of international marketers, particularly on pricing methods because of the nature of countertrading and the marketing process itself is highly progressive and purposive. Since price and pricing is critical in marketing, it should always be decided appropriately. This is to ensure unique, direct and effective marketing process.
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