SUMMARYMultiquimica do Brasil (MB) is the wholly owned Brazilian subsidiary of Multichemical Industries, Inc, of the United States formed in 1993 with the initial purpose of establishing manufacturing facilities for agricultural chemical, industrial chemical, and pharmaceutical products in Brazil. Multichemical Industries, Inc sold 75 different products in over 50 countries during 1998. The companyÃÂÃÂs principal product groups were: pharmaceuticals, industrial chemicals, agricultural chemicals, and petrochemicals. MultichemicalÃÂÃÂs overseas subsidiaries accounted for 35% of sales in 1998, with the majority of the activity taking place in Europe.
MB is responsible for all-Brazilian manufacturing and sales of Multichemical's principal chemical and pharmaceutical products in Brazil. As management reviewed preliminary 1998 results in early January 1999 of the foreign operations of the pharmaceutical group of Multichemical Industries, Inc, concern was growing about their position in Brazil. They were concerned that Multichemical's own pricing, billing, and performance measurement policies were contributing to falling profits and market share of MB's primary pharmaceutical product, in the Brazilian marketplace.
Both local and foreign producers were hurting their pharmaceutical products and their foreign exchange policies may well be to blame.
CASE QUESTIONS1. What is Multichemical Industries trying to accomplish with the ÃÂÃÂDollar Linkage BillingÃÂÃÂ arrangement between Multiquimica do Brasil and the domestic subsidiary?Within the Brazilian domestic market, MBÃÂÃÂs reported profit in dollar terms was affected by the more or less continuous change in the value of the real. Due to competition MB was forced to offer 90-day payment terms to their customers, which proved to be a major problem. Since the real was being devalued by a small amount on a continuous basis, any domestic subsidiary with terms of 90 days was faced with a currency lossÃÂÃÂtranslation lossÃÂÃÂwhenever its books were translated back into dollar terms. This translation loss resulted from the dollar value of the original real denominated...