In a short essay, explain why receiving payment can be more complicated in international business, and explain how countertrade can be both a method of payment and a form of foreign market entry

What will be an ideal response?

Receiving payment can be more complicated in international business. Foreign currencies may be unstable, and/or governments may be reluctant to allow funds to leave the country. In the event of disputes, local laws and enforcement mechanisms may favor local companies over foreign firms. Some customers in developing economies may lack payment mechanisms such as credit cards and checking accounts. In advanced economies and many emerging markets, firms often extend credit to buyers with the assurance they will be paid. It is typical for exporters to allow these customers several months to make payments or to structure payment on open account. In trading with some developing economies, however, exporters extend credit cautiously. They evaluate new customers carefully and may decline a request for credit if the risk is too great.

There are several methods for getting paid in international business. Listed roughly in order from most to least secure, they are: cash in advance, letter of credit, open account, and countertrade. While the last method, countertrade, can serve as a method of payment in international transactions, it is also a distinct form of foreign market entry.

In countertrade deals, typically the products that developing countries offer are commodities (for example, agricultural grains, minerals, or manufactured goods with limited international sales potential). The firm that receives such goods must find a way to sell them in order to get paid. Countertrade transactions are generally more complicated than conventional cash-for-goods trade. Multiple transactions may take years to complete.