International Corporate Finance: Value Creation with Currency Derivatives in Global Capital Markets, + Website

CASE STUDY 17.1

Wilkinson Sword's Trials and Tribulations in Turkey

This case study accompanies Chapter 17 of International Corporate Finance.

It was late December 2000 and Banu Ozcan, president and general manager of Wilkinson Sword–Turkey S.A., frowned as she examined the monthly foreign exchange (forex) exposure statement about to be sent to Wilkinson Sword's U.S. headquarters (see Case Exhibit 17.1). Having recently won approval for a US$12 million capital expenditure request for the launch of the new Quattro shaving system in Turkey, Ozcan was concerned by the modalities of its financing.

WILKINSON SWORD–TURKEY

The Turkish subsidiary, formed in 1971, was the first manufacturing operation of Wilkinson Sword (known in the United States as Schick¹) in the Middle East. Very early on, through skillful marketing, Gillette had established a dominant position in the Turkish market for shaving instruments. Over time, in part through continued tariff protection, savvy advertising, and product innovation, Wilkinson Sword had maintained and consolidated its quasi-oligopolistic hold on Turkey. This policy had been adhered to over the years in spite of difficult macroeconomic conditions, including bouts of hyperinflation and currency devaluation, which had affected the Turkish economy. In 1975, the Turkish government imposed foreign exchange controls prohibiting repatriation of funds. As a result, the subsidiary's earnings accumulated in Turkey. Foreign exchange restrictions were lifted ...