I entirely agree with Corion in that it seems to be a problem with encoding. It would be ideal to fix this at source (the IBM tool). If that isn't possible then Corion's approach sounds like the next best plan.

However, since you said:

So, another way to describe my problem is that I have not been able to write a subroutine that accepts a string, a 'from' hex value and a 'to' hex value and returns a modified string.

let me supply this alternative which shows such a subroutine:

#!/usr/bin/env perl 
use strict;
use warnings;
use Test::More;

my $instr = "a\xe9b\xe9";
my $outstr = replace ($instr, "\xe9", "\x65");
is ($outstr, 'aebe');
done_testing;

sub replace {
    my ($in, $find, $replace) = @_;
    $in =~ s/$find/$replace/g;
    return $in;
}
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