Xian-Janssen Pharmaceutical (China ) and the Euro - Case Study

1306 Words May 14th, 2013 6 Pages
Xian-Janssen Pharmaceutical (China) and the Euro

How can the Chinese subsidiary of a multinational company both hedge its currency risks and still meet the sales and profitability objectives directed by leadership?

Paul Young was the financial controller of Xian-Janssen Pharmaceutical Ltd. (XJP), the Chinese subsidiary of the U.S.-based multinational, Johnson & Johnson.
Paul was preparing for a meeting with his CEO, Christian Velmer, which would focus on the business plan for the coming 2004 fiscal year.
XJP was expected by leadership (corporate) to generate 1.2 billion renminbi in earnings in 2004, a 20% increase over a highly successful 2003 year
This would be a challenge given that XJP was suffering from a number of rising
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J& J has roughly 200 foreign subsidiaries worldwide. It has always pursued a highly decentralized organizational structure, in which the individual units are responsible for their own performance from the top to the bottom line of the income statement. How is this reflected in the situation XJP finds itself?
Although it is not unusual for a multinational firm to make foreign exchange gains and losses the responsibility of its foreign subsidiaries, it is not typically considered very efficient.
The subsidiary business unit is typically just that, a business unit, and does not ordinarily possess the resources of skills sets necessary for good exchange rate risk management.
That said, the strongest argument for placing foreign exchange responsibilities on the subsidiary unit is that it creates those exposures, and who better to charge with their minimization and management?
What is the relationship between actual spot exchange rate, the budgeted

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