February 12, 2009
Trading Partners Try to Barter Each Other Up
A recent piece in The
New York Times pointed to a growing trend in Russia. Companies struggling
with diminished cash flow and/or overstocks are looking to barter with
other businesses rather than pay them in rubles.
According to the article,
ads in newspapers and on websites are offering up trades on products. This
move to barter deals is not new to Russia, which saw half or more of total
sales in the country conducted in this manner back in the mid-1990s. Today,
bartering represents three to four percent of sales in Russia.
Part of the appeal of
bartering is it allows companies to avoid discounting products. “Russians are so arrogant
that they never cut prices,” Vladimir Popov, a professor at Moscow’s
New Economic School, told The Times.
Economists do not see
private businesses returning to bartering levels of the nineties as most
have fully made the transition to a market economy from the communist past.
Today, managers are focused on looking for ways to become more efficient
and reduce costs.
Still there are those
that see value in pursuing barter deals. A Hyundai factory in the town
of Taganrog is offering to trade vehicles for “raw materials,” “high-tech
equipment” or “other liquid goods, including finished products
of various branches of industry.”
Dmitri Smorodin, who
runs a large construction firm in St. Petersburg, has begun trading his
services for items of value.
“Food
we would happily accept, because it’s easy to sell,” he told The
Times. “Of course, money is always preferable.”
Discussion Questions:
Do you think we will see anything with bartering in the U.S. similar
what is taking place in Russia? Have you had any experience in barter
situations and are there a set of
“best practices” for doing it right?
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Can eBarter.com® be far away? Turns out it’s not, because we’re currently putting it together. Focus groups like it because it denies eBay and PayPal their cuts. The charges for connecting traders are minimal, and the exchanges will be both anonymous and smooth. All negotiations are between traders and their exchange satisfaction will be strictly between them. eBarter.com® is simply a conduit with minimum trade management. Caveat emptor.
There are already companies in the U.S. that arrange this kind of thing, basically taking your bartered receivable and attempting to “monetize” it by finding other trading partners. Of course they charge a fee for this–and interest–and soon you won’t have a receivable left!
In short, if you’ve already made a sale, and it’s a choice between something and nothing, a barter might make sense; in any other situation, you’re likely to be left with an illiquid and sort-of-what-I-wanted asset.
Here in Kalamazoo, MI, there is a large, small-business network that has been around for quite a while and I would expect it will grow in this difficult business environment.
I am wondering if the “pressure” CPG manufacturers are receiving will result in additional services being provided to retailers, in lieu of lower prices which will, in effect, create some form of psuedo-bartering system in the U.S. Food Industry.
I would also suspect there could be some three-way barter deals involving CPGs, Retailers-Wholesalers, and service providers in the data, transportation, advertising, or software/analysis segments.
With pressure on lower prices and tighter credit lines, an increase in this type of activity would not surprise me.
Having consulted in Russia for many years, I observed the barter up close. In the early days of the market economy, barter was widespread due to cash flow problems. Workers were simply not receiving their pay. Companies would barter their product just so they could give something to their workers. Much of the problem was due to companies making products no one wanted to buy. This was a carryover from the central planning days. As the economy improved, barter greatly reduced.
Barter has existed in this country forever. It is greatest among the trades. I do the plumbing on your house and you put a new roof on mine. Until the economy reaches the point where people will only horde cash, barter would not be expected to increase much in this country. The difficult part of barter is establishing value. The easy part is avoiding taxes.
Bartering has always had a place in the economy, just not a large one. The entire purpose of money, and more accurately credit, is to find a common value that allows people to commence trade using a commonly accepted denominator (money).
Bartering has a small place, but it will not be growing, especially in recessionary times, where the basics (which are usually purchased using money) are so important.
One of the attractions of barter is that it bypasses cash payments that would otherwise show up on the tax return. I seem to remember a bit of a barter trend in the mid-80s, in which fast-talking middlemen exchanged advertising space for surplus goods. My very first office PC was obtained this way, by a creative-thinking publisher.
Today, as then, barter may be motivated by a slow economy and the desire to find creative ways to release capital tied up in inventory. One difference today is the availability of Web based tools that can help individuals find each other with greater efficiency. The old middlemen may be less relevant now, that we have craigslist and similar means.
On the other hand, large-scale barter deals might attract the attention of the tax man, who might interpret them as a form of evasion. I’m not versed in the law on such matters, but I suspect that deals that originate online may be easier to flag. Placing a taxable value on the deals, on the other hand, is likely to be very subtle business. I’m not sure, in the present environment, that our government even cares to open that can of worms.
My guess, and it is a pure guess, is that this trend in Russia will not grow to much more than it is now. With the emerging BRIC (Brazil, Russia, India, China) markets’ growth being driven by expatriate Multinational Corporations, the cultures of those MNCs typically is not grounded in bartering to any significant degree at the corporate level. Are there instances, perhaps not “best practices,” but examples of bartering elsewhere? Sure, like in Southeast Asia and The Middle East, however, the influx of people into the BRIC and other growth markets will determine the path to the future of trade. The biggest issue in those regions is no real supply chain visibility. But that’s another discussion….
Small businesses barter services all the time. I’ve bartered editorial services for publicity on my business. I’ve bartered yard work for electrical services from a neighbor.
But you have to be careful and not barter your way into profit oblivion. Not sure it would work too well in the food business.
Barter has been part of economic systems from the beginning. Of course, it has only been used on the most basic levels. Today we see it often with small businesses. The objective is not to support pricing, but to provide goods or services when cash is not necessarily available.
That seems to be the same thing happening in Russia, except on a larger scale. Cash is at a premium and any action that can save company cash is viewed as a positive. I not only think we will see some bartering in the U.S., it would not surprise me if some hasn’t already been taking place.
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Can eBarter.com® be far away? Turns out it’s not, because we’re currently putting it together. Focus groups like it because it denies eBay and PayPal their cuts. The charges for connecting traders are minimal, and the exchanges will be both anonymous and smooth. All negotiations are between traders and their exchange satisfaction will be strictly between them. eBarter.com® is simply a conduit with minimum trade management. Caveat emptor.
There are already companies in the U.S. that arrange this kind of thing, basically taking your bartered receivable and attempting to “monetize” it by finding other trading partners. Of course they charge a fee for this–and interest–and soon you won’t have a receivable left!
In short, if you’ve already made a sale, and it’s a choice between something and nothing, a barter might make sense; in any other situation, you’re likely to be left with an illiquid and sort-of-what-I-wanted asset.
Here in Kalamazoo, MI, there is a large, small-business network that has been around for quite a while and I would expect it will grow in this difficult business environment.
I am wondering if the “pressure” CPG manufacturers are receiving will result in additional services being provided to retailers, in lieu of lower prices which will, in effect, create some form of psuedo-bartering system in the U.S. Food Industry.
I would also suspect there could be some three-way barter deals involving CPGs, Retailers-Wholesalers, and service providers in the data, transportation, advertising, or software/analysis segments.
With pressure on lower prices and tighter credit lines, an increase in this type of activity would not surprise me.
Having consulted in Russia for many years, I observed the barter up close. In the early days of the market economy, barter was widespread due to cash flow problems. Workers were simply not receiving their pay. Companies would barter their product just so they could give something to their workers. Much of the problem was due to companies making products no one wanted to buy. This was a carryover from the central planning days. As the economy improved, barter greatly reduced.
Barter has existed in this country forever. It is greatest among the trades. I do the plumbing on your house and you put a new roof on mine. Until the economy reaches the point where people will only horde cash, barter would not be expected to increase much in this country. The difficult part of barter is establishing value. The easy part is avoiding taxes.
Bartering has always had a place in the economy, just not a large one. The entire purpose of money, and more accurately credit, is to find a common value that allows people to commence trade using a commonly accepted denominator (money).
Bartering has a small place, but it will not be growing, especially in recessionary times, where the basics (which are usually purchased using money) are so important.
One of the attractions of barter is that it bypasses cash payments that would otherwise show up on the tax return. I seem to remember a bit of a barter trend in the mid-80s, in which fast-talking middlemen exchanged advertising space for surplus goods. My very first office PC was obtained this way, by a creative-thinking publisher.
Today, as then, barter may be motivated by a slow economy and the desire to find creative ways to release capital tied up in inventory. One difference today is the availability of Web based tools that can help individuals find each other with greater efficiency. The old middlemen may be less relevant now, that we have craigslist and similar means.
On the other hand, large-scale barter deals might attract the attention of the tax man, who might interpret them as a form of evasion. I’m not versed in the law on such matters, but I suspect that deals that originate online may be easier to flag. Placing a taxable value on the deals, on the other hand, is likely to be very subtle business. I’m not sure, in the present environment, that our government even cares to open that can of worms.
My guess, and it is a pure guess, is that this trend in Russia will not grow to much more than it is now. With the emerging BRIC (Brazil, Russia, India, China) markets’ growth being driven by expatriate Multinational Corporations, the cultures of those MNCs typically is not grounded in bartering to any significant degree at the corporate level. Are there instances, perhaps not “best practices,” but examples of bartering elsewhere? Sure, like in Southeast Asia and The Middle East, however, the influx of people into the BRIC and other growth markets will determine the path to the future of trade. The biggest issue in those regions is no real supply chain visibility. But that’s another discussion….
Small businesses barter services all the time. I’ve bartered editorial services for publicity on my business. I’ve bartered yard work for electrical services from a neighbor.
But you have to be careful and not barter your way into profit oblivion. Not sure it would work too well in the food business.
Barter has been part of economic systems from the beginning. Of course, it has only been used on the most basic levels. Today we see it often with small businesses. The objective is not to support pricing, but to provide goods or services when cash is not necessarily available.
That seems to be the same thing happening in Russia, except on a larger scale. Cash is at a premium and any action that can save company cash is viewed as a positive. I not only think we will see some bartering in the U.S., it would not surprise me if some hasn’t already been taking place.