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Multinational subsidiary host balance of payments (BOP) deficit; what measures?

1. 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 (the country in question) is running a worsening balance of payments (BOP) deficit and that the government's officials are very concerned about the situation. They are considering various measures to stanch or reverse the deficit flow.

What measures might be adopted? Can you think of some ways your company might profit from them or at least minimize the damage?

Support your positions.

Solution Preview

First of all we must define BOP. Balance of payment is a statement that summarizes all the economic and financial transactions between companies, banks, private households and public authorities of one nation with those of the other nations of the world over a specific time period. It includes merchandise trade payments, payments and receipts on account of shipping services, tourist services, financial services, government expenditures, short and long term capital movements, interest and dividends and gold movements. Trade balance, current balance, capital account and invisible balance together make up the balance of payments total. Prolonged balance of payment deficits tend to lead to restrictions in capital ...

Solution Summary

The 491 word solution first explains about the BOP (balance of payments) and then suggests some ideas for the country and the subsidiary.