The New Global Currency
Thursday February 27, 2003
business solutions section, pp. 14-15
Bartering is not only a great way for small businesses to save cash, it can also generate new trade, especially overseas. Tim Phillips reports on the new generation of intermediaries making it happen.
On the 10th floor of London's Centre Point office block, Frances Dickins buys and sells things almost nobody wants. As the chief operating officer of the UK arm of Active International, the world's biggest corporate barter company, she is accustomed to dealing with desperate companies. "They come to us when they have nowhere else to go," she says.
Instead of money, Active gives companies barter credits for last season's clothes, spare hotel rooms or tins of peas, which they can swap for goods and services they need at a later date. A common purchase with the credits is advertising, company travel or printing, bought at a discount through Active's trading desks. "You have a large amount of products you need to move; you're going to take a killing, maybe realise 20p or 25p in the pound. We'll give you the full value but in credit. Think of it as a book of discount vouchers," Dickins says.
Whether it is large companies with excess stock or small businesses that need to grow but don't have the cash, barter offers a way out of a fix.
Corporate barter isn't a new idea. For example, in 1935, US pharmaceutical giant Monsanto sold saccharin to a company in China. When the company was unable to pay in cash, Monsanto took frozen mackerel in exchange, and acquired an export market in the world's most populous country. In 1972, PepsiCo did a deal with the government of the USSR to supply the first western consumer product on sale in the Soviet Union. Instead of roubles, Pepsi was traded for vodka, and PepsiCo acquired distribution rights to Stolichnaya in the US.
Today, massive swap deals still happen. Last November the Thai government agreed to arrange a swap of 60,000 tonnes of excess rice for 300,000 South African cattle, avoiding a plunge in rice prices and solving its beef shortage in one trade. But thousands of small firms are also finding barter an indispensable part of their business. Barter exchanges handled goods worth $7.87bn in 2001, according to the International Reciprocal Trade Association. That business will grow 20% in 2002; add trades where no intermediary is used and the global barter market may be 10 times that amount.
In Active International's offices, even the furniture was acquired in a trade. This week a client in broadcasting has new computers, while a computer company has more TV advertising as a result. Another Active client is John Harold, managing director of Coombe International, manufacturer of Grecian 2000, Just For Men and Odor-Eaters ("all human misery is catered for," says Harold). When he has excess stock, he has to get rid of it as quickly as possible - but without flooding the market, causing existing retailers to slash prices or lose business.
Odor Eaters and Grecian 2000 often find their way to eastern Europe, having been repackaged using spare print capacity at another of Active International's clients. "This is quite difficult to do ourselves. We don't have contacts in eastern Europe, and Active does, so it's a very easy way to get rid of surplus stock," Harold admits. The credits help pay for the Just For Men TV advertising. Now you know who to blame.
The trading desks at Active often put together deals as complex as any financial product in the City. "It's like finishing a Rubik cube," says Dickins, admitting the cube sometimes takes longer to finish than she expects. "We acquired TV advertising airtime in Poland - I've nearly got rid of all that now. We had so much of it we could have been on 20 hours a day, and we did have a nasty incident with 150,000 singing lobsters. They didn't sing as expected."
With clients like Tesco, BMI and BT, Active is hardly fly-by-night, but Dickens admits the industry has a reputation for being "pretty grubby, a bit spivvy". This is partly due to a profusion of small barter trade agencies claiming to represent small businesses that came out of the internet boom in the 1990s, nearly all of which have disappeared. One of the few that has prospered is BarterCard International, originally from Australia but now based in 13 countries and with 2,000 participating businesses in the UK alone.
BarterCard's members are nearly all small businesses, most with between five and 100 employees, according to Wayne Sharpe, the company founder and now chief executive of BarterCard UK. "Let's say a restaurant wants to get £10,000 worth of printing done - it's unlikely it will find a printer that wants £10,000 worth of meals. With BarterCard, the restaurant pays the printer in trade pounds [Bartercard uses credit units called Trade Pounds to monitor the value of transactions], so it now owes £10,000 of meals to the BarterCard network," Sharpe explains. The network now embraces photographers, plumbers, even dentists, who can cash in those credits by eating in your restaurant.
BarterCard's other job is to take the risk out of bartering. It vets all its members and absorbs the risk, so that if another member goes bust, you don't lose your credit. In return, it takes 5.5% of each transaction in cash and a further 1% in credit. "Historically, barter has been a bit of a wild west show," Sharpe says. "There is less risk in our system than there is in a normal cash transaction."
Barter at this level saves cash. Sometimes it can also find you new customers. John Talbot runs Talbot's Investigations, a private investigation firm in Reading. Even after 17 years in the business, his turnover grew by 15% when he found he could barter spare capacity through BarterCard, earning trade credits for finding debtors or performing surveillance. He is aiming for 25% of his turnover as barter business. "It's a great way to use up spare capacity," he says. "But it leads to new contacts, and some of those customers refer me to contacts in the cash world."
BarterCard's global network is also making barter a true global currency for small businesses. "We have not come across any business that hasn't done a barter transaction. The reason they don't do it more often is probably because they don't have a secure mechanism by which to do it," Sharpe says. "With us, a hotelier in London can earn trade pounds here, walk into a restaurant in Sydney and pay with our currency."
Occasionally, barter gets you a deal you would never find in the cash world. Ask Peter Minuit, who in 1626 bartered $24 of beads - for an island called Manhattan.
BarterCard UK: www.bartercard.co.uk 01932 772772
International Reciprocal Trade Association: www.irta.com
Active International: www.activeinternational.com 020-7520 6666