Mini-Case 3: Crosswell International and Brazil

1. How is the pricing, the currency of denomination, and financing interrelated in the value-chain for
Crosswell’s penetration of the Brazilian market? Can you summarize them using Exhibit B?
- In this mini-case, we can observe that Crosswell’s products (diapers) are more expensive than
products sold in the market in Brazil. This is due to the export charges such as customs fees, the
exchange rate of 2.50 Brazilian Real (R$) per U.S dollar. This currency change inflates the cost of
Crosswell’s products. Since it’s better to sell and receive payment in the currency the products are
being made.
- From this Exhibit B, we can notice that Crosswell is taking a risk waiting for a 15-day approval for
Sousa, Brazilian Bank to approve purchasing and paying from R$ to U.S dollars. After this period on
the 30th day, Crosswell ships its products and must wait 60 days to receive payment. For 60 days
Crosswell has an A/R from Sousa.

2. How important is Sosa to the value-chain of Crosswell? What worries might Crosswell have regarding
Sosa’s ability to fulfill his obligations?
- Sosa is important to the value-chain of Crosswell because it’s a new market in the industry,
therefore, any local help with experience is valuable and helpful. Sousa is a local market in Brazil
and therefore, Sousa knows the culture, laws and market Crosswell is trying to enter to sell his
diapers.
- The worries for Crosswell is that Sousa is a relatively new distributor of diapers and might take
advantage of his slight knowledge of the Brazilian market. Also, Brasil has a legal system that is
much more corrupt than the US. Thus, requiring Crosswell to have financial statements of every
transaction.

3. If Crosswell is to penetrate the market, some way of reducing its prices will be required. What do you
suggest?
- If Crosswell where to penetrate the market I would suggest dropping its prices low enough that its
competition in Brazil starts to disappear. With this change, other firms will not be able to enter the
market nor compete with Crosswell thus allowing him to be the only competition in the Brazilian
Market. An advantage of an increase in sales volume, production volume, and a bigger opportunity
in the diaper market.

4. Are there any other recommendations/ suggestions you would make to improve or better Crosswell’s
position and competitiveness in Brazil?
- I would also recommend providing a better-quality diaper than other firms. With a better-quality
diaper and at a cheap price this could ruin other competitions. Also, this I would suggest Crosswell
expand in separate segments. Focus first on marketing to small segments and once it has enough
sales then it should expand with more products to other higher segments.

5. Update Exhibit A to reflect the currency exchange rate between the Brazil Real and US Dollar.
Exports Costs & Pricing to Brazil Per Case Rates & Calculation
FAS price per case, Miami $34.00
Freight, loading & documentation 4.32 $4,180 per container/968=$4.32
CFR price per case, Brazilian port (Santos) $38.32
Export insurance 0.86 2.25% of CIF
CIF to Brazilian Port $39.18
CIF to Brazilian Port, in Brazilian Real R$157.11 4.01 Real/US$ x $39.18 =$157.11
Brazilian Importation Costs
Import duties 3.14 2.00% of CIF
Merchant marine renovation fees 2.70 25.00% of freight
Port Storage Fees 2.04 1.30% of CIF
Port handling fees 0.01 R$12 per container
Additional handling fees 0.41 20.00% of storage & handling
Customs brokerage fees 3.14 2.00% of CIF
Import license fee 0.05 R$50 per container
Local transportation charges 2.36 1.50% of CIF
Total cost to a distributor in real R$170.96
Distributor’s Costs & Pricing
Storage cost 2.36 1.50% of CIF x months
Cost of financing diaper inventory 11.00 7.00% of CIF x months
Distributor’s margin 36.86 20.00% of Price + storage + financing
Price to the retailer in real R$221.18
Brazilian Retailer Costs & Pricing
Industrial product tax (IPT) 33.18 15.00% of the price to the retailer
Mercantile circulation services tax (MCS) 45.78 18.00% of price + IPT
Retailer costs and markup 90.04 30.00% of price + IPT + MCS
Price to the consumer in real R$390.18
Diaper Prices to Consumers Diapers per Case Price per Diaper
Small size 352 R$0.70
Medium size 256 R$0.96
Large size 192 R$1.28

6. What are the benefits of accepting the total payment after the full term? What are the benefits of
accepting the early, discounted payment?
- The benefit of accepting the total payment is that he receives the entire payment and not a
discounted amount that gives him a loss of $3,755 of earnings. Also, he will receive the payment
with the current currency value at 60days which represents a gain if the currency increases in value.
- The benefit of accepting the early discounted payment is the opportunity of receiving the money
immediately and not having to wait 60 days. Besides it avoids the delay of A/R in his statements and
allows him to invest in his profit immediately to create more product and continue distributing. Also,
he’s able to know the satisfaction of Sousa faster allowing to create a better relationship with his
trade partner.

7. In your opinion, which choice of payment would you advise Crosswell to choose? Explain.
- In my opinion, I would advise accepting the early discount payment because he’s able to invest in
this money to expand his company. Unless the Brazilian currency can increase in 60 days and is able
to increase its profit more than 1% from its investments. Therefore, he should wait, if not then he
should receive the payment early and not take the risk.
8. How would the proposal be affected if Crosswell collects the payment in Brazil Reals rather than US
Dollars?
- The currency change affects only the current margins when distributing his profits. The advantage of
this is he’s able to receive the profit in his trader’s coin immediately without having to go through
the issue of payment terms and the 60 days wait which they had to do to go from a Brazilian Real
and US dollar. Also, the depreciation of currency difference goes away.