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Multiquimica do Brazil

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Brian Westfall

on 8 November 2012

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Transcript of Multiquimica do Brazil

Multiquimica do Brasil (MB) Brian Westfall Andre Boudreaux Richard Gibbs "I'm really concerned about our position in Brazil. Our pharmaceutical products are being hurt by both local and foreign producers and our foreign exchange policies may well be to blame." - Don Howard, Multichemical Industries, Inc., 1999 Formed in 1993
Responsible for all sales and manufacturing in Brazil
Not profitable until 1996
Began producing Levadol in 1995
Raw materials sent from the U.S.
Converted into tablets in Brazil and sold to distributors History Levadol was popular before 1998
During 1998, Levadol lost both volume and market share The Problem = Competition Hoffman Generic Hoffman Generic Levadol = $218 $212 Main Competitors: More concerned with market share Greater size Longer payment terms $200 Sourced in Brazil Local patent expired Over-capacity So what were the problems for Multiquimica do Brasil? Dollar Linkage Billing Hedging Policies Dollar Linkage Billing Hedging Policies Enacted and Proposed Solutions "payable at the exchange rate in effect on the date of the receipt of goods"
30 days = time for goods to pass from the U.S. to Brazil
Invoiced in real
Customary credit terms on imports were 180 days
MB reported profits in dollars, not real
Competition forced 90 day payment terms to customers
"translation loss"
Solution: "forward pricing" Falling inflation rates
Government was depreciating real regularly
MB's reaction: raise prices
Multichemical says "borrow locally"
Allows corporation to eliminate risk of reporting large translation losses

Performance Measurement Policies
Previous system: performance measured by operating income
New system: Full Responsibility Accounting
Now responsible for currency gains and losses and interest expense
Actual hedging
More responsible forward pricing
Use of forward options or future rates
Remain price competitive
Pass on savings from production, policies and hedging to customer
"My greatest fear about Brazil is that we're being finessed by firms with a better knowledge of international business." - Paul McConnell, general manager, Multichemical Industries, Inc., 1999 Questions?
Full transcript