It’s one of the oldest systems known to man and now, according to new research by The City of London Corporation, bartering could be a useful tool for UK businesses in a market where cash is sometimes hard to come by.
The report released by the City of London Corporation together with the United Kingdom Economic and Social Research Council explores existing and potential applications of multilateral reciprocal trade, including countertrade and corporate and retail barter.
According to the authors of the report: “Reciprocal trade constitutes an estimated 20% (over US$100 billion) of global trade but contracts and negotiations tend to be lengthy and complex. The emerging multilateral reciprocal trade sector offers the potential to eliminate the inefficiencies of bilateral capacity exchange through the mechanism of common tender – an alternative means of exchange to sovereign currency which is not convertible to cash, earns no interest and can only be redeemed for goods and services within the capacity exchange.”
The report highlights how businesses with spare capacity in their own goods, services or infrastructure (often the case in economic downturns) could utilise their surplus via an exchange to ‘finance’ the purchase of other goods and services that they need. The report goes on to suggest that the development of a global capacity exchange hub in London could improve productivity by reducing surplus stocks and providing an alternative to conventional credit.
“The UK has a long history of responding quickly to the competitive challenges of new technologies and forms of commerce,” said Stuart Fraser, Policy Chairman at the City of London Corporation. “In a fast-changing world, now more than ever our future depends on meeting these challenges.”
Direct Barter vs Modern Day Barter
Direct bartering requires what economists call a double coincidence of wants, which means that unless two people have exactly that which the other wants (not to mention in comparable amounts and at the same time), then there is no deal. In that sense barter is particularly inefficient.
Fortunately, new forms of barter have emerged over the last few decades with multilateral barter exchanges operating more along the lines of an interest-free bank account rather than requiring a direct exchange of goods and services.
In such a system trades are recorded in a centralised ledger operated by a barter exchange operator. Whenever a business sells using barter their account is credited and when they buy their account is debited. This eliminates the need for direct trade between barter network members and allows for an increased amount of transactions to occur within the exchange.
As this is multilateral trade, sellers are not obligated to purchase from who they sold to, and vice-versa.
Jake Mesina, a consultant with the Ormita Commerce Network, an international barter service with offices in 17 counties and whose network was mentioned extensively in the City of London report, says that “bartering for goods and services can help many companies conserve cash flow, which is a useful strategy during this credit crunch.”
Smaller, more local networks, also exist across Europe such as the Chiemgauer system operating in Southern Germany. Last years turnover reached €5.1m, and the Chiemgauer is now accepted by more than 600 businesses in the Rosenheim-Traunstein area where it operates.
“Everyone wants to conserve cash and generate more wealth and in a highly competitive market every business is on the look-out for something that will give them a competitive edge. The barter industry represents an amazing opportunity for participants – allowing them to “trade what they have – for what they want,” says Mr Mesina.
As one of the worlds largest barter network operators, Ormita is currently exploring options for market entry into the United Kingdom and is on the look out for potential operating partners and/or licensees there. Interested parties may contact Mr Eduardo Resonable via email eduardo.resonable@ormita.com or telephone: +852 5808 2722 extension 3315.
Ormita Commerce Network Website: www.ormita.com
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