Adapted from “When You’re Short on Cash, Try Bartering,” first published in the November 2009 issue of Negotiation.
Here’s a prime example of negotiator innovation during difficult economic times. Eager to retain its top talent but low on cash, Zurich, Switzerland–based financial-services company Credit Suisse Group included millions of dollars of its own toxic assets in the 2008 bonus packages of its 2,000 top bankers. Typically, investment banks use cash and company stock to pay end-of-year bonuses.
But with Credit Suisse facing a net loss for the year, the firm’s distressed assets comprised up to 75% of traders’ bonuses, according to the Wall Street Journal, which documented the story.
Some of the bankers, who were depending on cash bonuses to finance new homes or school tuition, complained bitterly about the toxic assets, which landed like lumps of coal in their year-end portfolios. (Note that some of these bankers were responsible for acquiring Credit Suisse’s debt-ridden mortgages and bonds in the first place.)
But many of them were pleasantly surprised to learn in August 2009 that the assets had realized 17% returns since January—a better performance than the major stock indices, though well below the 75% jump that Credit Suisse shares achieved during the same time.
The decision to move the bad debt, which Credit Suisse had acquired during the boom years of the early 2000s, off its balance sheets and into a bonus pool was designed to help the bank and its employees ride out the bear market and give the loans time to recover. It was also classic bartering behavior—the practice of trading assets (even toxic ones) and services in lieu of money when cash is in short supply.
In an economic downturn, negotiation opportunities sometimes dry up because parties think they have nothing left to give. During times like these, bartering flourishes. Whether it’s toxic assets, piano lessons, manicures, or a fleet of new cars, most cash-strapped negotiators have something of value they can trade for what they want. This article will help you decide how and when to include bartering as a component of your negotiations.
The bartering craze
With the unemployment rate soaring and many organizations on the brink of bankruptcy, bartering has exploded. The ever-popular Craigslist.org reports that the number of postings on its bartering pages has doubled in the past year, and business-to-business bartering sites are experiencing record activity as well.
Why barter? First, and most obviously, bartering can save you money.
When you successfully exchange unwanted goods or easy-to-provide services instead of money for the things you want, you make an efficient deal that protects your (or your organization’s) bottom line. Bartering can also help you find new customers and generate referrals. And you can feel good about the eco-friendly nature of bartering, which often involves recycling old goods rather than buying new ones.
On informal Web sites like Swapstyle.com, U-Exchange, and Care.com, individuals can trade everything from books to cleaning services to child care.
If you’re a graphic designer who wants to rent a vacation home in a choice location, for instance, you might offer to build a Web site in exchange for a week’s stay.
Small businesses have long taken advantage of bartering opportunities that capitalize on their strengths and their weaknesses.
On fee-based sites like Itex.com and BizXchange.com, businesses can trade “underperforming assets” (such as old office equipment or television airtime) for the things they need (from advertising services to truck repair). By selling an item into one of these networks, you accrue points that you can use to buy goods and services from other members.
Large corporations routinely barter unwanted assets as well.
In June 2009, Hyundai Motor America traded 1,300 new Tiburon coupes to corporate barter company Active International in exchange for advertising credits and a small amount of cash, according to trade journal BarterNews. Active promised Hyundai it would not resell the cars to Hyundai dealers or otherwise undercut the company’s marketing programs.
Adding bartering to your negotiations
Bartering doesn’t need to be limited to onetime swaps of goods and services between virtual strangers. In more complex, ongoing negotiations, including those between long-term business partners, bartering is a smart way to avoid getting bogged down in price haggling. Just as you might create value in a negotiation by discussing delivery options and payment plans, you can expand the pie by adding new goods and services to the discussion.
Credit Suisse, for example, saw an opportunity to meet an obligation to its employees by removing unwanted assets from its balance sheets.
Yet bartering can bring added risk to negotiation; goods and services can be difficult to assess and sometimes difficult to claim.
Here are four guidelines to help you barter successfully:
1. Inventory unwanted assets.
When preparing for a negotiation, after determining your target price in the deal, consider whether you could replace some of that cash with items or services that would be easy and inexpensive for you to provide.
If your printing company is planning to make a purchase from an ad agency, for example, you might get a lower price by offering the agency a certain amount of free printing.
2. Find out what it’s worth.
In many cases, the negotiator across the table will appreciate the creative thinking that bartering brings to dealmaking.
But after the fact, you could end up with a dissatisfied trading partner if your bartered goods and services turn out to be less useful or valuable than you promised.
In a 2009 New York Times article on bartering, a painter told reporter Alina Tugend that she’d had many satisfying bartering transactions, including giving a painting to a plastic surgeon in exchange for a “free nose.” But she regretted trading a special painting for weekly massages that “weren’t that great.”
In the business world, a bartering failure could damage your reputation or that of your organization.
How can you be sure you are representing bartered items accurately and fairly?
First, when preparing to barter, remember that sellers have a tendency to overvalue their assets. To bring your estimates in line with reality, research the value of the items or services you’re bartering thoroughly and present your negotiating partner with evidence of their worth.
In addition, be very specific about what you’re offering and how soon you will provide it. If you’re tempted to offer your firm’s accounting services to one of your vendors, for example, make sure you have staff available to fulfill that obligation on a timely basis.
3. Explain your position.
Bartering shouldn’t be a tough sell if the other side is eager to receive what you have to give. But sometimes the other party would simply prefer cold, hard cash. Even so, you may be able to convince your counterpart to accept what you’re offering if he believes it’s the best you can do and if he has nowhere else to turn.
Though they weren’t thrilled to be taking on toxic assets instead of cash or company stock, Credit Suisse’s bankers had little choice but to accept the unconventional payment in the midst of a financial crisis.
4. Barter with caution.
Because an excess of bartering arrangements could leave you overworked and cash poor, limit your bartering to a small percentage of sales. In addition, go back to cash when you can.
Thanks to improved earnings, for example, Credit Suisse officials told its employees that their 2009 bonus packages would revert to cash and stock. Finally, be sure to conduct due diligence on all your trading partners and insist on detailing bartering arrangements in writing.
No comments:
Post a Comment