Irene Cooper
Week 8 Case Study: Using Countertrade 12/16/2023
1.
Describe a countertrade strategy that could reduce Ryco’s exposure to Brazilian inflation.
The proposed countertrade strategy Ryco would enter with Concellos would be a Barter agreement. Ryco would be exchanging some of its chemical products directly for Concellos's chemicals. This eliminates the need for exchanging currency and mitigates the impact of inflation on the price of the chemicals. 2.
Would Concellos be willing to consider this strategy? Is there any favorable effect on Concellos that may motivate it to accept the strategy?
If Concello’s agree to this countertrade strategy then it would not be exposed to weak currency as it would be purchasing U.S. goods through countertrade. This concellos could also be able to stabilize its imports in this way. Barter mitigates Concello’s dependence on the volatile USD and protects against any further devaluation of the real. Concellos will have a reliable source of chemicals from Ryco. 3.
Assume that both parties agree on the countertrade terms. Why would the cost of obtaining imports still rise over time for Concellos? Would Concellos earn lower profits as a result?
If both the parties agree to this countertrade then both of their cost of imports would be the cost of producing chemicals they use for exchange with each other. Since there is
inflation in Brazil so production cost may tend to rise but it can be offset by increasing prices on final product to cover the cost of production. Thus it would be easier to offset the higher cost in this way as compare to exchange rate effects. Concellos will earn more or less similar profits as before. A well-structured barter agreement can significantly benefit both Ryco and Concellos. However, careful negotiation, clear terms, and ongoing communication are crucial for a successful and mutually advantageous partnership. By understanding the potential benefits and challenges, both companies can make informed decisions and ensure the long-term sustainability of the countertrade strategy.
