The Bofors-India Countertrade Deal

Bofors AB is a Swedish company that specializes in the manufacturing and sales of weapon systems such as antiaircraft/antitank guns, artillery, and ammunition. The Indian government concluded an agreement with Bofors AB for the purchase of 410 FH77B howitzers ($1.3 billion) in 1986. The FH77B howitzer is a powerful, highly mobile artillery system. It has a gun with a range of 30 km and a capability to fire three rounds in thirteen seconds. It can be integrated with a 6×6 all-terrain vehicle.

The agreement provided for the purchase of goods from India amounting to not less than 50 percent of the value of the contract. Given its lack of experience in countertrade, Bofors AB signed a contract with other Swedish and U.S. trading companies to fulfill its countertrade agreement with India. Among these compa­nies, Sukab took the leading role due to its vast experience in international trade and expertise in countertrade. Sukab is owned by more than eighty Swedish com­panies and was set up after the Second World War to promote Swedish exports.

Pursuant to the agreement, Sukab promoted the sale of Indian goods in Swe­den through various channels, including seminars held by Swedish trade coun­cils and chambers of commerce. It also set up offices in India to provide export training (e.g., on the best ways and means of exporting Indian goods to Sweden).

The Indian government had to approve of all the products being exported. Bofors AB was provided with a list of approved products. Certain products were specifically excluded from the list of exports.

The major factor that motivated India to enter into the countertrade arrange­ment was its lack of hard currency to pay for the purchase of the howitzers. The countertrade arrangement provided an opportunity to India to generate enough hard currency to fulfill a portion of its commitments. Furthermore, the arrange­ment allowed India to expand its distribution channels and gain new markets. The countertrade arrangement also allowed Bofors AB to win the contract over other competing firms.

Source: Seyoum Belay (2014), Export-import theory, practices, and procedures, Routledge; 3rd edition.

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