You are the chief executive officer of a multinational’s subsidiary in a developing host country. The subsidiary has been in business
for about eight years, making electric motors for the host country’s domestic market, with mediocre financial results. Before
you left the home country a month ago, you were told to make the subsidiary profitable or consider closing it.
After a month in the host country, you have discovered that it is running a worsening balance of payments (BOP) deficit and
that the government officials are very concerned about the situation. They are considering various measures to stanch or reverse
the deficit flow.
What measures might they adopt? Given that you would prefer to keep the subsidiary open, since it employs locals and contributes
to the country’s economy in other ways also, can you think of some ways your company might profit from or at least minimize
the damage of these potential measures?
Take a shot. what do you think? Hint: list the many kinds of transactions that lead to a worsening balance of payments problem. Of those, list the ones your company contributes to. With each of these, think about what a government could do to mitigate the problem, if anything. Would this government solution help or hurt your company?
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