Richland Crane (U.S.) exports heavy crane equipment to several Chinese dock facilities. Sales are currently 10,000 units per year at the yuan equivalent of USD24,000 each.

The Chinese yuan (CNY) has been trading at CNY8.20 = USD1.00, but a Hong Kong advisory service predicts the yuan will drop in value next week to CNY9.00 = USD1.00, after which it will remain unchanged for at least a decade. Accepting this forecast as a given, Richland Crane must make a pricing decision in the face of the impending devaluation.

It may either (1) maintain the same yuan price and in effect sell for fewer dollars, in which case Chinese volume will not change; or (2) maintain the same dollar price, raise the yuan price in China to offset the devaluation, and experience a 10% drop in unit volume. Direct costs are 75% of the U.S. sales price.

a. What would be the short-run (one year) impact of each pricing strategy?

b. Which do you recommend?