21st Century Counter Trade
By William Cate
21st Century Counter Trade
By
William Cate
The U.S. Department of Commerce hates it. The World Bank questions its long-term economic impact. However, an estimated 130 countries are doing almost US$500 billion worth of global trade under counter-trade-related schemes.
If the world relied solely upon Counter Trade, the U. S. wouldn't have a $278,000,000,000.00 trade deficit. The world debt crisis and growing weakness in the American Dollar has made trade financing very risky and thus increasingly costly. Western countries, watching jobs flee overseas, are slowly returning to the idea of bi-lateralism as a way to reduce trade imbalances.
There are five basic types of Counter Trade: barter; buy-back, counter-purchase; tolling and offset. We're going to compare a simple multi-country barter model against the traditional export model. We'll assume that the exporter can get ninety day net terms from the American manufacturer. And, we'll presume that air cargo shipments take two days and surface shipments take forty days. We'll assume that the pre-tax profit at each step will be 33% and that the exporter will structure their company to minimize their legal tax obligations. Keep in mind that there are tens of thousands of potential products, two hundred countries in the world and nearly an infinite number of ways to put counter trade deals together.
The Traditional Export Model
The Exporter will move to Reno and incorporate the export business in Nevada. Their business is to export American-made computer microchips. They have a buyer in Singapore offering a 90 Irrevocable Letter of Credit (ILC) and their manufacturer is willing to defer payment for 90 days. They buy $200,000 worth of microchips, airship them and sell them in Singapore for $275,000. Ninety days later, they have a gross profit of $75,000 and a pretax profit of $66,000. After paying U.S. Federal income tax, they earn about $44,800. Since they can repeat the microchip export four times each year, their after tax profit is nearly $100,000. This is more money than the majority of people earn living in Nevada. Not bad.
The Counter Trade Model
The Exporter incorporates their Counter Trade business in Belize. Their business office is in Barbados. They have the same relationship with an American computer microchip manufacturer. They have a buyer in Singapore offering to barter their computers for the American microchips. They have an importer in Senegal willing to take the computers and pay for them in high quality textiles that a buyer in London wants and will pay for in 75-year-old scotch. And, they have a gem broker in South Africa who wants the scotch against a payment in uncut diamonds. The counter trader has a deal with a diamond dealer in Toronto. The Canadian wholesaler has retail buyers in the States, who want the diamond rough.
The Counter Trader buys $200,000 worth of American microchips and trades them in Singapore for $275,000 in computers. He ships the computers to Senegal as the Senegal buyer surface ships the textiles to France (no import duty on Senegal exports to France) and from La Harve, the textiles are surface shipped to Portsmouth. The London textile buyer air ships the scotch to Cape Town as the South African liquor buyer air ships the uncut diamonds to Toronto. The Canadian gem dealer distributes the stones to his American retail buyers. The Counter Trader starts with a $200,000 purchase. In Singapore, he's paid $275,000 in computers. In Senegal, he collects $352,000 in textiles. In England, he gets $450,000 in Scotch. In South Africa, he acquires $576,000 in uncut gems. In Canada, he is paid $738,000 for the uncut diamonds in cash. His pretax profit is $243,000. Since Canada has a double taxation treaty with Barbados, he pays the Barbados 8% income tax on his profit. Our Counter Trader's after-tax profit is about $224,000. He or she can repeat this series of barter trades four times each year. The Counter Trader's annual after tax income will be nearly a million dollars.
Conclusion
Counter Trades are potentially ten times more profitable than the traditional export model. However, it takes ten times more effort to setup a series of successful barter trades. If you have the initial contact for an export business consider operating a Counter Trade business rather than an export business. If you are seeking advice or a partner for a Counter Trade business, contact me at: Beowulftrading@Earthlink.net
About the Author
Mr. Cate has decades of import and export experience. He can be contacted at:http://home.earthlink.net/~beowulfinvestments/beowulftrading/
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What Everyone Should Know About How To Buy Wholesale
By: Melanie Burns
Finding a supplier for the product you want to sell, at a price that you can profit from, can be a big task. The best suppliers for your online sales or auctions do not advertise their services and often cannot be found online.
Those that you can find online tend to be middle-men. It is often difficult to get a good enough price to make any real profit online.
Let me tell you about my simple 2 step system to find an untapped source for wholesale suppliers. This is so simple that it's often overlooked as a source for product. This system involves thinking outside the box and not letting policy stop you. (continued below)
The First Step to find a supplier is to find someone that already sells or has access to what you want to sell. This could be a website, an eBay seller, a manufacturer, a wholesale outlet, or a regular store in your city. This is the easy step. You know what you are looking for and you can search on the internet, not for a wholesale source, but for anyone already selling what you want to sell.
Another valuable source for a local supplier is your local phone book. The yellow pages are the best way to find local sources. This should be the first place you look. Doing business locally with someone that you can meet face to face is a big plus for your business.
Another potential source for your product is to find a distributor who would be willing to private label a product for you. You could get a very high quality product for a much lower price than if it had the name brand label.
The Second and Key Step is to convince the source you found to become your supplier.
Manufacturers and wholesale sources often have minimum orders that might be beyond your reach if you are just starting out. Online retailers, eBay merchants, and retail stores may be your best bet. Try to find a small store who is looking to expand.
But remember, you are dealing with a human being and they can be convinced to do business with you. Just be sure to sweeten the deal for them. One way is to offer the person you are dealing with at your new found source, a percentage of your profits from the products he supplies you.
Be sure to project it out for him. If he can see the benefit of working with you even though it causes extra work for him, you can be successful in making a deal.
You could offer him 20% of the profit from sales of his products. For example you could show him that you project to make at least $100 profit from each product, and you expect to sell 40 of them per month. The $4000 a month means an extra $800 per month in his pocket. You still make a nice $3200 profit for the month in this example.
On top of that, he will be ordering more products from his supplier and may be eligible for a higher price break from them. This way, his reward for the effort to work with you, is making money on both sides.
There are many benefits you can offer your potential supplier, but no matter how you look at it, the main thing it comes down to is MONEY. What's in it for your potential supplier to do business with you? If can you show him that, you have a better chance of making a deal with him and starting your online sales.
NOTE: When looking for suppliers around your city, don't go trying to impress the big stores with your $800 or even $3,000 extra income per month proposal. Try going to the little stores that are looking to expand their business, they are the ones that are usually more open to new opportunities.
The big stores are making hundreds of thousands of dollars per month in profits, so an extra couple of thousand would probably not impress them the least bit.
So now you see that by thinking outside the box, you open the door to many possibilities and increase your ability to make money online with your products.
About the Author:
Copyright © Melanie Burns
This article is free for reproduction but must be reproducted in its entirety including live links and this copyright statement. Subscribe to the iBusiness How2 Newsletter to receive hot tips, how to's, internet business tools, and relevant product reviews by sending an email to: newsletter@internet-business-how-to.com
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