Given the information provided in the incident, you need to prepare answers to the following questions
A) (10 points) How would the devaluation of the Argentine Peso affect your contribution in the home currency ($)? [Hint notice the 2 scenarios of currency drops of 15% and 25%] B) (10 points) How much more sales revenue would be needed in Argentina to maintain your current contribution of 21% of sales?*
C) (5 points) What courses of actions do companies have when they believe there is a high likelihood of currency devaluation?
International Marketing Incident A: Argentina Currency Devaluation A long simmering conflict between Argentina and the United Kingdom over sovereignty of the Falkland Islands has begun to escalate. The UK has announced its intention to begin oil exploration on the island. The Argentine government has protested the UK's right to do so. The conflict has reignited tensions going back to the 1982 war between the two countries over the Falkland Islands. Because of the escalating tension, many investors are moving their money out of Argentine Pesos and into more stable currencies. This capital flight has caused the Argentine Peso to drop on foreign exchange markets. Your group is currently operating in Argentina. AllStar management is concerned to what extent the Argentine Peso will be devalued. They want to examine two scenarios where the currency drops 15% and 25%. Currently the exchange rate is 4.2974 Pesos to Dollars (see Exhibit 1). How would the devaluation of the Argentine Peso affect your contribution in the home currency ($)? How much more sales revenue would be needed in Argentina to maintain your current contribution? Contribution after Marketing in Argentina for the period was 21% of sales (see Exhibit 2). Your goal is to maintain this percentage. Exhibit 1: Exchange Rates Home Dollar ($) Arg. Peso Bra. Real (BRL) Chi. Peso (CLP) Mex. Peso (MXN) Peru Sol (PEN) Ven. Bolivar (VEB) (ARS) 4.2974 1.9376 12.2699 Home Argentina 518.13 120.57 2.9386 0.6838 5.6786 1.3214 0.2327 0.4509 2.8552 sales revenue would be needed in Argentina to maintain your current contribution? Contribution after Marketing in Argentina for the period was 21% of sales (see Exhibit 2). Your goal is to maintain this percentage. Exhibit 1: Exchange Rates Home Dollar ($) Arg. Peso (ARS) Bra. Real (BRL) Chi. Peso (CLP) Mex. Peso (MXN) Peru Sol (PEN) Ven. Bolivar (VEB) 4.2974 518.13 12.2699 2.9386 5.6786 Home Argentina Brazil 1.9376 0.4509 2.8552 120.57 267.41 0.6838 1.5166 2.2179 6.3325 0.2327 0.5161 0.0019 0.0815 0.3403 1.3214 2.9307 0.011 Chile 0.0037 0.0237 0.0083 0.3502 1.4624 0.0057 0.2395 Mexico 0.1579 0.4628 42.23 176.32 Peru 0.6594 4.1755 1.9324 Venezuela 0.1761 0.7568 0.3412 91.24 2.1607 0.5175 Exhibit 2: Argentina Contribution after Marketing ARS % 46 325.9 Unit Sales Manufacturer Sales Costs Gross Margin 100% 40% 183.3 142.6 44% Total Marketing 73.3 23% Contribution after Mkting 69.3 21%
