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The Buzzards Circle.

Bad news means good news for the barter business, especially in Brazil.

MEET BILL LEVITZ. HE'S IN the barter business. He trades things companies can't sell-- excess inventory, canceled orders, unused real estate, seasonal merchandise. When business goes bad, he's on the scene. These days, the 55-year-old executive is spending most of his time snooping around Brazil.

In February, Levitz, executive vice president of Atwood Richards, the world's largest barter company, blew through Sao Paulo and Rio de Janeiro, meeting with about 10 companies in as many days. He returned to company headquarters in New York with a briefcase full of business opportunities because the region's largest economy was in bad shape and growing worse. "The multinationals have excess inventory to unload from canceled orders and Brazilian companies want someone to help them export," says Levitz. "It's going be a very big year for us in Brazil."

Unsold merchandise. The barter company will take almost any product a firm cannot sell in one market and sell it elsewhere. In exchange, the seller gets "financial trade credits" that can be used to purchase a variety of services and products ranging from printing to real estate. Since most businesses prefer to sell products for cash, they turn to this service only in an exceptional situation.

Since the onset of the Asian crisis in 1997, the situation has become "exceptional" in one market after another as many markets have gone into deep recessions. Privately held Atwood has been doing a brisk business, claiming a 35% increase in sales during the last two years. Reps are hunting deals in the depressed economies of Japan, Thailand, Malaysia, Russia and now Brazil.

The dramatic devaluation of the Brazilian currency, the real, coupled with high interest rates and high unemployment promises lots of unsold merchandise. Financial officers and executives of both multinationals and Brazilian companies have been meeting to consider the situation. Two topics dominate the discussions: fear that inflation could be reignited and predictions at what level the Brazilian currency will finally stabilize. The consensus is that inflation will climb as high as 50% this year and that the exchange rate against the dollar will settle between 1.55 and 1.70 reals.

In the meantime, companies like Kolynos, the Brazilian subsidiary of Colgate-Palmolive, must sell existing inventories. The company swapped 23 million tubes of toothpaste for "Atwood currency," which it used to buy corrugated cardboard and printing services. To keep the product from returning to Brazil or spoiling export operations, Kolynos made sure that the barter company did not sell the toothpaste in other parts of Latin America. It was sold in Eastern Europe.

Too much toothpaste. "It was a very good business deal for us because we did not have any better options on selling so much toothpaste," says Antonio Carlos Da Silva, head of Colgate-Palmolive in Brazil.

Not everyone is sold on bartering. "We consider both bartering and making donations of, say, surplus inventory, especially during a natural disaster like the recent Hurricane Mitch in Central America," says Rafael Casas-Don, a spokesman for the Latin American headquarters of Procter & Gamble in Venezuela. "[Donating] is good for our corporate image in the community."

A company, however, can only give away so much product. There are many customers in Da Silva's shoes in Brazil, where the recession has left a lot of inventory in warehouses. Faced with too many mini stereo systems in Brazil for too little demand, Philco, the U.S.-based maker of home appliances, recently turned to the barter company for help.

In general, Levitz says, Brazil's current situation reminds him of Mexico following the peso crisis in 1994--1995. With this experience as his guide, Levitz is keeping close watch on Brazilian banks. The banks will likely end up holding lots of assets from companies that can't pay back loans. "It happened in Mexico where we bought washers and dryers worth millions from a bank that had taken the goods from one company to settle a bad loan," he says.

Brazil's economy will bounce back because its banking system is far stronger than Mexico's at the time of its crisis, he says. If the economic storm worsens in Brazil, however, Levitz and his salespeople will be around to make money from the damage.
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Title Annotation:bartering industry
Publication:Latin Trade
Geographic Code:3BRAZ
Date:May 1, 1999
Previous Article:Flooding the Market.

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