PepsiCo sold its cola syrup to Russia and agreed to buy Russian vodka at a certain rate for sale in the United States for the next five years. Do you perceive any risks with this bartering pricing method? Explain. How would you reduce this risk?

Yes there are risks involved

Explanation:

This type of bartering pricing method is a type of Countertrade called Off set.

Countertrade can be defined as the way in which goods and services are paid for by exchanging for another type of goods and services instead of paying with money.

Offset as a type of Countertrade can be defined as when a company that sold one of their products to a particular country agrees to buy one of the products manufactured in that country at a particular rate for sale in their country. Offset helps a country to gain entrance into difficult markets, reduces the rate of unemployment and it helps to raise the level of foreign exchange of a country.

One of the risks involved in Offset for example used in the trade between Pepsico and Russia is:

a. The value and quality of the goods bought can be uncertain.

b. The negotiations between the two parties can become very complex.

c. The cost of transactions between both parties increases.

d. There would most likely be a presence of logistical issues.

These risks can be reduced by :

a. Since the value or quality of the products cannot be determined at the time of the trade negotiations, the best way to reduce this risk is to put someone who has a knowledge of this products in charge of the importation .

b. In order to minimize risk, it is important that they company (Pepsico) has risk insurance.

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