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Global trader with a social cause in the making
By Melvin J. Howard
Circumstance has away of preparing you for life without you
knowing it. For example when I was in College I got a job that was arranged by
my alumni department head. It was working for a major defense contractor in
their countertrade division. Little did I know at the time it would play a
major roll in my life now? Countertrade is a term used for parallel business
transactions, linking sellers and buyers in reciprocal commitments, which
usually lie outside the realm of typical monetary trade. Some of the common
forms of countertrade transactions include barter, counterpurchase,
compensation, buyback, clearing arrangements, offset and switch trading. More
than 10% of world trade today involves some form of countertrade.The World
Trade Organization estimates that 15% or $8.43 billion of the $5.62 trillion in international trade
is conducted on a non-cash basis.
My mentor was a great teacher he was a Vice President of the
defence firm I was working for. I was learning first hand how to do world trade
not in the classroom but on the front lines. He took me under his wings and
taught me the most basic and the most complicated forms of Trade. Offsets–an umbrella term for a broad range of
industrial and commercial compensation practices required of foreign suppliers under
primarily government agency of state-owned enterprise acquisitions–were made a
common requirement for the procurement of either military (e.g., fighter
aircraft) or high-cost civilian hardware (e.g., commercial aircraft). Both
defense and non-military offsets may entail overseas co-production of the
procured item, as well as other economically beneficial transfers to the
importing country that are not related to the original export. To assist their
exporters some industrialized country governments also promoted countertrade
under government agreements. For example, the French Ministry of Agriculture
signed in 1989 an agreement with the USSR Council of Ministers which provided
for exchanges of Soviet commodities for French agricultural and food processing
equipment and technologies. Other Western governments, such as those of the
United States, Canada, Belgium, Holland, the United Kingdom, and Italy,
established special countertrade service units within public agencies to
provide countertrade-related advisory assistance to their exporters. The French
Government has supported instead the formation of a separate countertrade
assistance entity in the private sector. The Swedish Government was until 1990
a major stockholder, through interests by the Swedish Investment Bank, in a
private sector company involved in countertrade. Now with trade agreements like
NAFTA in 1994, which integrate regional trade, based on free market principles
some countertrade has abated somewhat.
International countertrade practices are now increasingly
associated with bidding on major defense and non-military government
procurement contracts and with project financing–a contract-based,
off-balance-sheet finance technique whereby revenues generated from the output
of the financed project are directly allocated to service outstanding debt and
principal. A variation of the countertrade buy-back contract which links
foreign contractors’ repayments to the output products of the production
capacity they supplied, project financing relies instead mainly on contractual
recourse to the project’s revenue streams. (According to the World Bank,
developing countries are now spending around $200 billion a year on new
infrastructure investment, one-fifth of their total investment.) High
procurement costs and tighter budgets have prompted many emerging country
governments in the 1990s to issue new civilian offset regulations (e.g., United
Arab Emirates, Kuwait). Civil offset requirements, therefore, are increasingly
acquiring a financing rationale in these markets. In a global environment of
budgetary constraints, the ability of suppliers to meet offset requirements
and/or to provide their clients with financial packages that can best those of
competing bidders is a major competitive edge.
International trade in medical services will become
increasingly more important. For ensuring quality, well-known medical
facilities are likely to invest (commercial presence) in countries. Likely to
be the destination of “consumption abroad” mode. Likely to be the supplier of
patients mainly due to “poor quality” of medical care rather than the cost of
care. International migration of foreign medical graduates will likely to be
associated with commercial presence rather than traditional migration. New
migration pattern will further encourage adoption of consumption abroad
approach for reducing overall healthcare cost in both developed and low-income
developing countries. Further expansion of consumption abroad will discourage
purchase of expensive health insurance plans. In high medical care cost
countries; international trade in health services will encourage purchase of
catastrophic insurance plans. Health expenditure in the world in 2005 was about
$4.8 trillion ($60 trillion was the global income) $4.0 trillion in OECD
countries, $800 billion in the remaining
160 countries of the world. Globalization has increased trading in health care
services. Cost of international communication, travel has declined. Time lag
has declined significantly and for electronic transfer of information, it has
become almost zero (origin to destination). Cost of obtaining services of
similar quality varies significantly among developing countries as well as
between developing and developed countries of the world. There are types of
medical care services that are extremely time sensitive. Waiting will rapidly
reduce the benefit of treatment.
The benefit function
declines rapidly. If the time lag between the onset of the condition and
reservation benefit level is shorter than the time needed to travel to a
country, the service will be demanded locally. Worldwide, 1.3 billion people do
not have access to effective and affordable health care. Low- and middle-income
countries bear 93% of the world's disease burden, yet account for only 18% of
world income and 11% of global health spending. What governance structures are
necessary to encourage the right mix of public and private health care
provision? What regulatory framework is needed to induce businesses to provide
insurance, provision and finance for health in poor countries? How can the
fruits of medical knowledge and technologies be shared among rich and poor
countries without destroying incentives to generate more knowledge? What forms
of international cooperation are conducive to the finance of health systems in
developing countries? What international institutions are required to make
health care for the poor an attractive opportunity for business? One thing is
clear groups or individuals who think health care is static or promote the
status-quo are sticking their heads in the sand. Recent economic conditions
highlight the need for new sources of capital to be brought to bear on social
problems.
At the heart of the social enterprise movement is the
ongoing challenge of accessing investment capital for socially responsible
purposes. Acquiring start-up capital is
a common issue for many nonprofits. It's exacerbated by federal tax laws that
restrict nonprofits from accessing traditional forms of equity, such as venture
capital and, sometimes, commercial debt. For the most part, nonprofits must
rely on private foundation grants, government support, and, for some, earned
income such as fees for services. To subsidize their earned income, some
nonprofits have set up separate social enterprise business sidelines. The
for-profit sector faces its own challenges in funding charitable activities
because federal tax laws generally restrict private business entities from
accessing foundation grants and government assistance. In addition, for-profit
investors expect market-rate returns and maximized profits. Their expectations
don't align well with social mission-focused entities, which need "patient
capital" and typically have slower, more modest growth.
There is a growing body of thought that new business models
and possibly new tax incentives or structures are needed to effectively bridge
the "sector" gap. These new models would eliminate the need for
social entrepreneurs to either choose between the for-profit and nonprofit
business models or create and manage both. One such model, could be a form of
business that blends attributes of nonprofit and for-profit organizations in
order to promote investment in socially responsible objectives. “It’s time we
utilize innovative ways to stimulate the economy and create jobs we need to
spur the growth of socially responsible business by simplifying partnerships
between nonprofit foundations and for-profit investors. Hybrid financial tools
can generate a vast pool of investment funds needed to develop companies dedicated
to the public good.
There are major lessons learned
from the global greed era we are leaving behind to a new era which creates an
opportunity for the investment of private capital to further social purposes.
