Performance Evaluation After Translation. Herb Gonzalez is the manager of a South American subsidiary of MDE International. In a recent meeting of subsidiary managers in the western hemisphere, Herb learned he was one of only a few managers in world operations to meet or exceed budget projections. The actual sales exceeded the budgeted sales, and cost of goods sold and operating expenses were lower than projected. Herb acknowledged how easy it was to meet budgeted numbers when his budget was denominated in local currency. He knew what he had to do.

The next day, the president of MDE International made a presentation of operating results of all subsidiaries world-wide. To bring comparability to the presentation, the results of all subsidiaries were translated into U.S. dollars. The subsidiaries were ranked according to operating net income after translation. Herb found, to his astonishment, that his subsidiary was listed in the bottom ten performing subsidiaries. How conld he be one of the top managers one day and the next day be one of the ten worst managers?

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1. Give an explanation for why Herb's performance looks good in local currency but looks poor after translating the results into U. S. currency.

2. What are the problems associated with making comparisons of subsidiaries operating in different countries?