Crosswell at the Brazilian Market

664 Words Mar 12th, 2011 3 Pages
1. What actions would you recommend to Crosswell and to Leonardo Sousa that would enable them to hit the target of R$83.00 per case of diapers?

To reduce costs and reach a competitive price in the Brazilian market, Material Hospitalar should get 180-day credit from Crosswell International and then be able to sell the product and collect the sales money in 30 days. At this point, Material Hospitalar will invest the money in the high-yielding Real-denominated deposit rates. They will deposit the cash proceeds for 60 days at 9.25% and then again deposit the proceeds plus the interest gained so far for another 60 days at 8.75%. (Interest Source: Brasil FaxLetter, Gilbert o L. DiPierro, August 4, 1995, Miami , Florida). Of course, this
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Currency risk will be always present because the product has being imported with a dollar-cost basis and competitors are all manufactured locally. Therefore, we can find room for hedging. If the Material Hospitalar Company is concern about a Real depreciation, they can take a position where if the Real’s value falls, they would make money and offset any increase in the costs incurred because of that depreciation. For example, they can buy a call option on USD or “long the call” which would give them the right to buy USD (International Finance, Sercu. 8.1.1 Call options, p.263) at a spot price indicated in the contract that should be, of course, very similar to the current spot price. This way they are protected against any lose caused by a possible Real depreciation.????????

Because it is always difficult for a company like Crosswell International, with no presence or knowledge about the Brazilian market, to penetrate successfully this market, the role of the local distributor is very important. Leonardo Sousa, Material Hospitalar president, and his staff should be able to efficiently (keeping low costs) search out and penetrate the retail distribution outlets. Actually, Sousa, being a local businessman, should be able to reduce some cost in the distribution process, so a competitive price for the product can be reached. His efforts should be focused on reducing storage costs, inventory financing expenses and also try to reduce his own