Answer to Question 1
Companies are sometimes unable to import merchandise in exchange for financial payment. The reason is either that the government of the importer's nation lacks the hard currency to pay for imports or that it intentionally restricts the convertibility of its currency. Fortunately, there is a way for firms to trade by using either a small amount of hard currency or even none at all. Selling goods or services that are paid for, in whole or in part, with other goods or services is called countertrade. Although countertrade often requires an extensive network of international contacts, even smaller companies can take advantage of its benefits.
Nations that have long used countertrade are found mostly in Africa, Asia, Eastern Europe, and the Middle East. A lack of adequate hard currency often forced those nations to use countertrade to exchange oil for passenger aircraft and military equipment. Today, because of insufficient hard currency, developing and emerging markets frequently rely on countertrade to import goods. The greater involvement of firms from industrialized nations in those markets is expanding the use of countertrade.
Buyback is the export of industrial equipment in return for products produced by that equipment. This practice usually typifies long-term relationships between the companies involved.
A buyback joint venture is formed when each partner requires the same component in its production process. It might be formed when a production facility of a certain minimum size is needed to achieve economies of scale but neither partner alone enjoys enough demand to warrant building it. However, by combining resources, the partners can construct a facility that serves their needs while achieving savings from economies of scale production. For instance, this was one reason behind the 500 million joint venture between Chrysler and BMW to build small-car engines in Latin America. Each party benefited from the economies of scale offered by the plant's annual production capacity of 400,000 enginesa volume that neither company could absorb alone.
Answer to Question 2
B
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