Zorawar
10-05-2006, 08:58 PM
BARTER IN MEDIA (http://economicstrategy.blogspot.com/2006/03/sin-money.html) You will soon be able to buy media space in exchange of unsold inventory. That is what Active International’s business strategy (http://economicstrategy.blogspot.com/2006/08/new-ipos.html) will allow. A trading firm present in 18 countries, including the US, the UK, Singapore and Australia, Active will introduce this new way of buying media space in India. Corporate trading, as this form of exchange is called, started in 1970. Companies like LG Electronics, Unilever, Victoria’s Secret and Calvin Klein have used these services offered by Active. Since it was set up in 1984, Active has traded in goods worth $1.4 billion and sold media space worth $1.1 billion.
Active had roped in KPMG to study the Indian market. Active International CEO Alan S. Elkin says: “We found that Indian companies (http://economicstrategy.blogspot.com/2006/03/investing-in-india.html) had huge underperforming assets, which they either sold at 20 per cent of the wholesale price or exported to Africa. We sensed an opportunity.”
The company expects to do business worth Rs 50 crore in its first year. Active is talking to about 40 companies in real estate (http://economicstrategy.blogspot.com/2006/09/neemrana-industrial-estate.html) and consumer durables. Next it will try to build a distributor network in India and then align it with its global network.
This is how the corporate trading system works:
Step 1: Consider a media company that needs to purchase certain goods worth, say, Rs 5 crore, for its own use. Active supplies these goods, but takes its payment in terms of space from the media company. Say, Rs 10 crore worth of space (at card rates). For this Active has spent Rs 5 crore.
Step 2: Active buys inventory from an advertiser with products whose wholesale value has depreciated. Say apple juice with wholesale value Rs 5 crore, which distributors would buy only at Rs 2 crore. Active would pay Rs 5 crore to the advertiser in vouchers and not cash for the goods. The Rs 5 crore worth of juice is now sold at Rs 2 crore to the wholesaler and this money now belongs to Active. So it has earned Rs 2 crore.
Step 3: The advertiser buys media space from Active using the vouchers. Active will now sell the Rs 10-crore media space to the advertiser at Rs 12.5 crore. But the advertiser can buy this space with Rs 7.5 crore in hard cash and Rs 5 crore in vouchers, which it got from Active in Step 2. So Active gets Rs 7.5 crore.
Through this circuitous route, the advertiser buys media space worth Rs 12.5 crore at card rates, but in the process has disposed of his excess inventory. The media company sells space in exchange of goods. In the process Active earns revenues of Rs 4.5 crore (Rs 7.5 crore + Rs 2 crore - Rs 5 crore).
Active had roped in KPMG to study the Indian market. Active International CEO Alan S. Elkin says: “We found that Indian companies (http://economicstrategy.blogspot.com/2006/03/investing-in-india.html) had huge underperforming assets, which they either sold at 20 per cent of the wholesale price or exported to Africa. We sensed an opportunity.”
The company expects to do business worth Rs 50 crore in its first year. Active is talking to about 40 companies in real estate (http://economicstrategy.blogspot.com/2006/09/neemrana-industrial-estate.html) and consumer durables. Next it will try to build a distributor network in India and then align it with its global network.
This is how the corporate trading system works:
Step 1: Consider a media company that needs to purchase certain goods worth, say, Rs 5 crore, for its own use. Active supplies these goods, but takes its payment in terms of space from the media company. Say, Rs 10 crore worth of space (at card rates). For this Active has spent Rs 5 crore.
Step 2: Active buys inventory from an advertiser with products whose wholesale value has depreciated. Say apple juice with wholesale value Rs 5 crore, which distributors would buy only at Rs 2 crore. Active would pay Rs 5 crore to the advertiser in vouchers and not cash for the goods. The Rs 5 crore worth of juice is now sold at Rs 2 crore to the wholesaler and this money now belongs to Active. So it has earned Rs 2 crore.
Step 3: The advertiser buys media space from Active using the vouchers. Active will now sell the Rs 10-crore media space to the advertiser at Rs 12.5 crore. But the advertiser can buy this space with Rs 7.5 crore in hard cash and Rs 5 crore in vouchers, which it got from Active in Step 2. So Active gets Rs 7.5 crore.
Through this circuitous route, the advertiser buys media space worth Rs 12.5 crore at card rates, but in the process has disposed of his excess inventory. The media company sells space in exchange of goods. In the process Active earns revenues of Rs 4.5 crore (Rs 7.5 crore + Rs 2 crore - Rs 5 crore).