When Credit Is Tight, Try Bartering

By Amy Leang
 
ABU DHABI, UNITED ARAB EMIRATES — If the global recession has made it nearly impossible to sell your portfolio of flats, how about swapping it for a truckload or two of steel? One Dubai property developer is thinking of doing just that.

Across the globe, companies are short of cash and credit, and seeking alternative ways to survive the economic turmoil. Share markets alone shed US$29 trillion (Dh106.53 trillion) in value in the past year. Banks, still feeling the bite from worthless assets, remain unwilling to lend.

Enter Bob Bagga, who has tweaked an old-school method of doing business to fit these recessionary times. His company, BizXchange, is a trading platform that bypasses the credit markets and instead uses barter to help companies buy and sell products. Last year, BizXchange started operating in the UAE, and in the fourth quarter alone helped broker Dh11.1 million in trades.

“We do well in good economic times and we see a huge increase in demand for our services in downward cycles,” Mr. Bagga says. “In the last six months, the phones have been ringing off the hook.”

Now, he is trying to bring together two companies from industries particularly hammered by the economic downturn: the property market and metal commodities. The $10m apartments-for-steel rebar exchange could be his biggest deal yet in the Emirates.

Barter has long been used as an alternative means of doing business, especially in less-established economies. Pepsi and Russia formed an unlikely alliance when the soft-drink giant gained marketing rights in Russia in exchange for ships full of vodka. Mercedes-Benz traded buses for $44m of bananas in Ecuador, and Thailand offered rice in return for fighter planes from Russia. The International Reciprocal Trade Association (IRTA) estimates that 30 per cent of the world’s business is done on a barter basis.

“It’s an issue of mutual coincidence of want,” says Mr. Bagga, who ran barter services in Canada and the US for 17 years before moving to Dubai last year.

Industry insiders call it “commercial trade”. A better name might be Barter 2.0. BizXchange gets around a traditional barter system’s biggest problem: you need to have what the other person wants at the same time.

Instead, firms become members of BizXchange, a virtual trading floor where they offer a product or service to other members in return for credits, equal to the local currency. They can then cash in those credits at a later date for other goods and services from other companies on the exchange.

A hotel, for example, with 20 per cent of rooms unoccupied could trade that “wasted inventory” for goods and services for which they would normally pay cash. In addition to filling rooms with potential new customers, the hotel also cuts expenses.

A Dh1,000-a-night room actually costs a hotel Dh300 to clean and maintain. On the BixZ exchange, the hotel could sell the room for 1,000 trade credits.

And in return, it can use these credits whenever it wants to acquire from other members things such as artwork, radio advertisements or even flat-screen TVs. So although it spent Dh300 on the upkeep for the room, it saved itself Dh700 because it did not have to buy those goods on the open market.

Mr. Bagga’s service provides the platform and publishes an online catalogue so BizXchange members can find each other. The companies may use his brokering services or work out arrangements on their own, including part-cash, part-barter deals.

BizXchange is the first formalized barter company to set up in the Emirates, although UAE companies have used barter services abroad. Mr Bagga checks each new applicant closely because they receive an opening line of credit when they sign up.

He strives to pair up companies because BizXchange receives a commission of 6 per cent to 10 per cent on each transaction. While the exchange offers credits, Mr. Bagga’s payments are in Dirhams and the companies involved in the trade assume any risks. Brokering trades has made Mr. Bagga, 39, a star, not to mention a fortune, in alternative trade circles.

His first venture in Canada, Barter Business Exchange (BBE), netted him and a partner $45m when they sold it to an Internet company a year before the dot-com bubble burst. Later, the US granted him an expedited passport on the grounds he was considered an expert in his field.


Bob Bagga, Cheif Executive of BizXchange, said his
company's success in brokering barter deals is based
on the mutual coincidence of the wants of his clients.

“I always think of him as the boy-wonder,” says David Wallach, the president of the International Reciprocal Trade Association (IRTA). Mr. Wallach has sat on a board with Mr. Bagga and describes the BizXchange founder as the consummate entrepreneur. “He has has all the attributes. He’s someone willing to take managed risks.” Mr. Bagga first veered off of a tried-and-true career path at 22, when he dropped out of law school. Already a small-business owner with a record store near campus, Mr. Bagga decided to start a barter service with a friend.

BBE was created with less than $10,000 the two pooled together in 1992.
“We thought ‘If we ever get 500 customers, we’ll be happy’,” he recalled.
They reached that milestone within the year and by 1999 BBE had 6,000 clients, including Canadian blue-chip companies Air Canada, Westin Hotels and Rogers Broadcasting.

The company went public in 2000 and Mr. Bagga quickly sold the company to a dot-com firm. At the age of 30, Mr. Bagga was a retired multi-millionaire.
Over the next two years, Mr. Bagga did consulting work and took an active role in the Young Entrepreneurs Organization (now called Entrepreneurs’ Organization, or EO).

After the September 11 attacks in New York, the economy took a nosedive and Mr. Bagga’s EO friends convinced him the time was again ripe for barter services.

Three months later, BizXchange opened its doors with offices in San Francisco and Seattle. It accrued a solid roster of clients, including the Seattle Seahawks football team and Clear Channel, the radio station owner. Soon, BizXchange was one of the fastest-growing companies in both cities.

Ever the entrepreneur, Mr. Bagga began itching for his next opportunity. He found it in Dubai, a red-hot economy that would serve as the perfect beachhead to expand operations into the GCC and even India and China. A Canadian of Indian origin, Mr. Bagga said he was drawn to Dubai’s mix of East and West.

He set up office in a tower overlooking Sheikh Zayed Road and hired a small sales team. Tapping into his network of contacts, friends and friends of friends, Mr. Bagga began to hawk the BizXchange concept.

“The first time he told me, I didn’t really understand what he was talking about,” says Lothar Hohmann, the director of Precise Trading.

Precise produces 90 tones a year of 3-D engraved crystals for the sort of corporate plaques and key chains commonplace at company awards galas.

But the second time Mr. Bagga showed up at his office, Mr. Hohmann says he was impressed with the range of services with which he could trade. He has since used the exchange to secure the services of a courier firm.

The outlook for BizXchange seems bright. While a lingering economic downturn is usually bad news for most companies, Mr. Bagga believes BizXchange will grow as more companies in distressed industries turn to him to sell their goods.

Most notably, he sees opportunities in the rental market as landlords are forced to drop rents to avoid vacancies. Dubai could see its population drop by 80,000 residents this year, according to estimates, bringing occupancy levels down.

Mr. Bagga expects business to rise as landlords put rental units on the BizXchange platform. “Everybody and their brother in this area owned property [in Dubai] at some point,” he says. “Those with excess units will be looking to rent them out.”

In fact, those property developers might be willing to trade for some steel. Forget buying and selling. This year is shaping up to be a barterer’s market.