Multiquimica Do Brasil

Multiquimica do Brasil

Irina Shaykhutdinova

International Finance

Professor Davide Accomazzo

Pepperdine University

Summary

Multiquimica 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 company’s principal product groups were: pharmaceuticals, industrial chemicals, agricultural chemicals, and petrochemicals. Multichemical’s 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.

Strategic actions taken by MCI

MCI were concerned that its 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. Therefore MCI took the following actions to lower production costs, foreign exchange risk and devaluation of Brazilian real:

1. Installation of manufacturing plant in Brazil.

2. Dollar Linkage Billing – payable at the exchange rate in effect on the date of the receipt of goods.

3. Forward Pricing – MB’s management predicted the amount of real devaluation which would occur during the forthcoming 90 days.

4. Hedging policy – local borrowing.

5. Performance Measurement Policy....