COUNTERTRADE BIG IN CHINA, RUSSIA

COUNTERTRADE BIG IN CHINA, RUSSIA

Mike Pawluk, then a director of Pepsi World Trade, wanted to move into Chengdu, China, but the Chinese wanted something in return.

''We talked to them, and they threw a basket of products at us they were interested in,'' Mr. Pawluk said. ''We decided on a silk dyeing and printing facility.''That was four years ago. A year later the $15 million Pepsi plant opened, the first in Sichuan province in southwest China, but one of many in that country. The silk dyeing plant will open in Chengdu March 1 with 90 employees, and that may grow to 220 by the third year.

This is countertrade, which is the parallel purchase or trade of one product in exchange for another or a negotiated concession to a foreign governmental buyer.

Countertrade involves helping your international customers by doing such things as generating currency for them to buy your products, helping them market their products and sharing marketing or technological information.

Today the former Soviet Union and its satellite states are the most fertile areas for countertrade.

''The switch to capitalism has not been smooth. Some countries like Ukraine, Romania and Bulgaria are going into countertrade,'' said James Gerwin.

He worked with Mr. Pawluk at Pepsi World Trade, a unit of Pepsico Inc., along with Christoph Adamski until the firm was spun off a year ago into Emerging Markets Resource Development. These three men now are the principals of the privately held firm, based in White Plains, N.Y.

OLD HABIT NEVER DIED

Another expert notes that Russia's involvement in countertrade dates back to the early years of the Cold War.

''They were doing that after World War II and haven't weaned themselves away,'' said Art Ismay, who has handled countertrade with private firms for 12 years. He is on the board of the American Countertrade Association, a Washington-based group.

When he was in Russia in 1995, Mr. Ismay was talking with the general manager of a major producer of hard alloy cutting tools used at the end of lathes. Outside were new military trucks from Kamaz, a firm that had suffered a devastating fire at its engine plant.

''I asked the general manager of the plant what he was doing with those trucks. 'I've received those, and it's better than nothing,' '' the general manager responded.

Russian firms have also paid in oil or timber, said David Danjczek, chairman of the executive committee at the Countertrade Association.

''Cash is king, but sometimes you have a different method of financing,'' said Mr. Danjczek, who is also staff vice president of Unova Inc., an industrial automation firm in Beverly Hills, Calif.

Wayne Cooper, another countertrade expert, agreed. ''When you work on a project overseas, you get, 'Oh, by the way, we don't have any money,' '' Mr. Cooper said. ''You get another buyer for the goods.''

DIESEL-ENGINE PAYOFF

For instance, Mr. Cooper is president of Arcon Manufacturing Inc., a Charlotte, N.C., firm that makes silos. A Chinese company, whose name Mr. Cooper won't divulge, is trying to pay him with 100-horsepower diesel engines, so he is seeking to sell the engines in Mexico.

''You have to have another buyer for the goods,'' Mr. Cooper said.

These experts thought the economic turmoil in Southeast Asia would help countertrade, a concept new to most countries there, except Indonesia. ''I bet a lot of American companies doing business in Indonesia will not be paid this month,'' Mr. Cooper said.

The economic crisis in Asia has made the rupiah, baht and won plunge. With the currencies devalued, these countries could retreat to a barter economy, which is the root of countertrade.

''Countertrades are investments in foreign countries,'' Mr. Danjczek said. That may involve long-term strategic investment or industrial participation in another country's economy like the Pepsico-Chengdu example.

Pepsico selected a silk dyeing plant because silk is the largest item produced and generates the most revenue in Sichuan, China's most populous province.

OUTSIDE ASSISTANCE

Mr. Pawluk then lined up formidable partners - four Chinese silk companies; Ratti SpA, a printing company from Como, Italy; and Shinwha Textiles, a Seoul, South Korea-based company.

After that, the partners got financing from the Asian Development Bank and ING, a multinational Dutch bank.

For that, the Chinese government let Pepsi into Chengdu. ''We swapped technologies,'' Mr. Pawluk said.

The private and financial partners shared in the $12.5 million expense needed to open the silk dyeing plant.

The facility, called Sika Silk, is 51 percent owned by the foreign partners and 49 percent by the Chinese government. Mr. Pawluk is still chairman of the corporation and acts as a consultant.

Understandably, Mr. Pawluk recommends linking up with a firm like his before trying countertrade. ''You need the foresight to negotiate with local government authorities, and you need to have the financing.''

Mr. Ismay suggests an inexperienced company network through the Countertrade Association, where it can find companies that provide reputable assistance and experience. Then the company starting countertrade will know what to expect and how to do it.

''This is a matter of talking and listening to what your customer has to say and getting paid in product,'' Mr. Ismay said.