The life‐cycle pattern of east‐west countertrade

Abstract

IntroductionThis paper examines the role of countertrade (CT) in foreign trade, with particular emphasis on how it enables firms to enter the markets of the former Council for Mutual Economic Assistance (CMEA) countries. CT is commonly regarded as an inefficient nuisance, resorted to only when normal trading media are inaccessible (e.g. Cohen and Zysman, 1986). Hence, as impediments to conventional trade are removed, one might expect more orthodox trading relationships to be established.Recent liberalizations in the ex-CMEA economies provided an opportunity to examine whether CT was merely an intermediate phase in the emergence of alternative market-servicing modes over time. Firms may have used CT to establish market "toe-hold" presences to be consolidated later by setting up more formal strategic alliances, e.g. joint-ventures. However, CT may retain certain advantages still applicable under new economic regimes. If currency and credit problems persist in some areas, CT may remain a highly effective (and possibly the only) trading medium especially in the further-flung markets of the ex-CMEA countries. If so, far from vanishing, CT may have a continuing role, not only in enabling firms to establish market bridgeheads, but also in allowing them to exploit short-term profit opportunities.Research into CT behaviour usually relies on cross-sections of firms from a single country. In contrast, this paper offers evidence on CT practices by firms from two nations, capturing changes in their behaviour as trading conditions alter over time. Evidence on changing patterns and levels of CT is used to analyse the proposition that CT is a staging-post en route to more orthodox trading forms. This analysis underpins the development of a life-cycle approach to market-servicing by CT. There are thus two intertwined themes in this paper -the response of firms to economic transition in former CMEA countries, and