China : 'Out of box thinking' to survive credit squeeze

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'Out of box thinking' to survive credit squeeze

31
Dec '08

The economic turmoil across the globe is leading companies to think out of the box in order to survive the storm of the crisis. The Chongqing Lifan Group plans to exchange cars with other companies for other products, which in essence is the medieval way of trading or the barter system.

On the exchange radar are raincoats, umbrellas, shirts, tents, information calendars, etc. The main purpose behind adopting this unique medieval system is to maintain continuity in sales and reduce costs and the total barter amount is expected to be more than 10 million Yuan.

Coincidentally, in July this year, Beijing Huiyuan Juice Group exchanged 400,000 boxes of fruit juice with Qingdao Aucma Co., Ltd. for 6000 sets of display cabinets, worth of about 14 million Yuan and Shanghai Arts Development Co., Ltd. exchanged finished Yue-Sai dolls with Laweilier Toy Co, France for fabrics and PVC materials, worth US $3,000,000.

Since the beginning of the sub-prime crisis in the US, credit market is tightening and banks have restricted lending, leading to a credit squeeze. At the same time corporate finance costs continue to increase, leading to a barter system among companies, as the approach involves no cash.

In this so-called barter, companies use their own products to exchange for raw materials and consumer goods with other companies, which would have been originally purchased in cash, in order to reduce their liquidity pressure.

Director of the Beijing Center of Qingdao Aucma Business Co., Ltd. Wang Li-Ming said," Barter means no cash is involved and in the process the company can get a variety of products or services in return like raw materials, promotional materials etc., which originally would have been purchased in cash. The barter plan for next year is expected to reach 60 million Yuan, for the company”, he added by saying.

It is estimated that sales cost of a product in general is 27 percent, while the cost of barter is only 5-7 percent. The barter system came in to prominence with the unfolding of the Asian financial crisis in 1997 in Thailand, Malaysia, Japan, South Korea and other countries.

Fibre2fashion News Desk - China

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