Singapore Firms Turn to Bartering

By Mariko Oi Asia Business Report, BBC World, Singapore
16 May 2009

In northern Singapore, among many residential flats, there stands a huge six-storey building called Northlink.

It houses more than 500 small to medium sized businesses, or SMEs. They are the backbone of Singapore's economy, and yet they are the hardest hit by the current recession. Since the global credit crunch spread to the city state, banks became nervous to lend - especially to SMEs. Alarmed by the situation, the government has announced that it will spend almost $4bn (£2.6bn) to stimulate bank lending in the budget.

But Singapore is experiencing its worst downturn in its history, with the economy forecast to shrink by much as 10% this year. And the freeze in credit markets is not yet thawing. So businesses are turning to alternative methods to pay their bills, a tactic once considered a last resort, namely the age old practice of barter trade.

Last resort
On the top floor of Northlink building, manager Malvin Khoo is busy finalising deals with his clients. He owns a Singapore based printing and packaging firm that employs 15 people.

"The greatest thing about bartering is I could be ordering a jumbo jet, or a yacht tomorrow," he quips. Obviously, that is "quite unlikely", he laughs, though he has managed to use a property in Malaysia to barter with. "It is the cheapest way to expand my business." Mr Khoo joined Barterxchange, a network of 600 businesses in Malaysia and Singapore, 18 months ago.

Instead of simplistic one-to-one direct exchange of goods and services, members go online.
Forget cash. They have their own universal currency.

Companies earn credits by offering their services and skills. They can then use them to get what they need from other members.
"I had some customers that I did packaging for, who had surplus plates," explains Mr Khoo. "So I structured to trade $20,000 worth of plates to restaurants. Some of them were just opening up so they needed new plates."

In return, Mr Khoo scored free meals at various restaurants. One of them is Megumi Japanese restaurant, which has sold dining vouchers worth more than $10,000.

"Not only did we get free webpage design and printing services by bartering, we also got some tremendous exposure to the business community," says managing director Hazel Hok.
"We used to be a local neighbourhood restaurant, but we have seen a significant increase in corporate functions."

New members
And there is no geographical boundary. Asia's biggest barter trade site is connected to more than a dozen global websites, where half a million companies participate. "We have even sent electronic goods to Nigeria," says Lee Oi Kum, executive chairman of Barterxchange.

The industry is now worth over $8bn annually, according to the International Reciprocal Trade Association. And its popularity is rising. Barterxchange has seen a 30% jump in its membership since 2007. Companies cannot operate solely by bartering. But it definitely offers alternative methods to make things a little easier.

UK Trade Credit Insurance 'Top-Up' Scheme

From UK Budget09:

In line with the Government’s objective of providing targeted support to address specific challenges that business are facing, the Government announces a ‘top-up’ trade credit insurance scheme to help UK businesses maintain their finances. Under this scheme, the Government will offer to ‘top-up’ private sector trade credit insurance provision for six months. The scheme will be available to the 14,000 businesses that already use trade credit insurance and will mitigate against disruption to the supply chain and cashflow of the 250,000 companies they do business with, if their trade credit limits are reduced.

14,000 companies of all sizes currently buy trade credit insurance against supplies to over 250,000 UK businesses as a guarantee that their bills will be paid. Suppliers who experience reductions in credit limits may choose to stop future deliveries or refuse to extend credit, adding to pressures on firms potentially already facing difficulties and tending to reduce the level of trade.
From May 2009 until end December 2009, suppliers will be able to purchase six-months’ ‘top-up’ insurance from the Government if credit limits on their UK customers are reduced, backdated to 1 April 2009, providing another alternative to the abrupt disruption of supply and cashflow, and giving time for the businesses affected to adjust to changing circumstances.
The Government has worked collaboratively with the private sector insurers, who will provide this product on the Government’s behalf, to design a scheme that is well targeted and protects taxpayers’ interests. Therefore, the amount available to each supplier if a company’s credit limit is reduced will be that which either restores cover to the original amount, doubles the amount the company is able to obtain from the private sector, or £1 million, whichever is the lower.
The aggregate level of insurance provided under the scheme will be capped at £5 billion, and companies from all sectors of industry and from all stages of the UK supply chain will benefit from the increased certainty that this scheme provides.