Transfer pricing refers to the prices at which divisions within a company transact with each other for goods and services. There are various methods for determining transfer prices, including market-based, cost-based, and negotiated prices. The objectives of transfer pricing include goal congruence between divisions, optimal resource allocation, and performance measurement. However, there are also conflicts to consider such as balancing divisional autonomy versus corporate interests. Guidelines recommend transfer prices incentivize managers while maintaining goal congruence and organizational objectives.
The State Trading Corporation of India LtdMayur Khatri
The State Trading Corporation of India (STC) is a government trading company established in 1956 to aid private trade and industry with exports and imports. It has over 850 employees located across India and handles a variety of goods including rice, wheat, edible oils, and coal. STC provides financial assistance and expertise to help small businesses export goods and find international markets. It also undertakes various corporate social responsibility initiatives in areas like education, healthcare, and infrastructure development.
Foreign direct investment (FDI) occurs when a firm invests directly in new facilities in a foreign country. FDI is undertaken to take advantage of lower costs for resources unavailable in the home country. The firm maintains significant control over the foreign operation and can affect managerial decisions. There are several types of FDI including inward FDI into a country and outward FDI from a country. India allows up to 100% FDI under an automatic route in most sectors to encourage economic growth and development.
International Business Introduction, Nature and ScopeDheeraj Rajput
This document provides an overview of international business, including its nature, benefits, problems, and scope. It discusses various entry strategies for international business such as licensing, exporting, franchising, contract manufacturing, joint ventures, strategic alliances, and foreign direct investment. Examples are given for each entry strategy. The document aims to introduce the key concepts of international business.
This document provides an overview of pre-shipment and post-shipment export finance in India. It discusses the different stages and types of export finance, including packing credit, advances against payments and bills. It also outlines guidelines from the RBI and ECGC on providing export credit, the roles of these organizations, and financing options for software exports.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Unit -2 lecture-6 (international investment theory)Dr.B.B. Tiwari
The document discusses several theories of international investment:
1. The theory of capital movements explains international investment as the transfer of capital between countries to obtain profits through interest, dividends, or share of profits. It can involve physical or financial capital.
2. Market imperfections theory explains international investment flows that arise due to markets not meeting the standards of perfect competition.
3. Internalization theory explains why firms choose foreign direct investment over licensing to retain control of proprietary knowledge and avoid transaction costs of contracting.
4. Location-specific advantage theory considers location factors like resources, labor costs, or infrastructure that make one location more profitable for investment than others.
5. Dunning's eclectic theory
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
The State Trading Corporation of India LtdMayur Khatri
The State Trading Corporation of India (STC) is a government trading company established in 1956 to aid private trade and industry with exports and imports. It has over 850 employees located across India and handles a variety of goods including rice, wheat, edible oils, and coal. STC provides financial assistance and expertise to help small businesses export goods and find international markets. It also undertakes various corporate social responsibility initiatives in areas like education, healthcare, and infrastructure development.
Foreign direct investment (FDI) occurs when a firm invests directly in new facilities in a foreign country. FDI is undertaken to take advantage of lower costs for resources unavailable in the home country. The firm maintains significant control over the foreign operation and can affect managerial decisions. There are several types of FDI including inward FDI into a country and outward FDI from a country. India allows up to 100% FDI under an automatic route in most sectors to encourage economic growth and development.
International Business Introduction, Nature and ScopeDheeraj Rajput
This document provides an overview of international business, including its nature, benefits, problems, and scope. It discusses various entry strategies for international business such as licensing, exporting, franchising, contract manufacturing, joint ventures, strategic alliances, and foreign direct investment. Examples are given for each entry strategy. The document aims to introduce the key concepts of international business.
This document provides an overview of pre-shipment and post-shipment export finance in India. It discusses the different stages and types of export finance, including packing credit, advances against payments and bills. It also outlines guidelines from the RBI and ECGC on providing export credit, the roles of these organizations, and financing options for software exports.
Transfer Pricing
Objectives of Transfer Pricing
Methods of Transfer Pricing
Cost Based Transfer Pricing
Market Based Transfer Pricing
Negotiated Transfer Pricing
Advantages and Disadvantages
Unit -2 lecture-6 (international investment theory)Dr.B.B. Tiwari
The document discusses several theories of international investment:
1. The theory of capital movements explains international investment as the transfer of capital between countries to obtain profits through interest, dividends, or share of profits. It can involve physical or financial capital.
2. Market imperfections theory explains international investment flows that arise due to markets not meeting the standards of perfect competition.
3. Internalization theory explains why firms choose foreign direct investment over licensing to retain control of proprietary knowledge and avoid transaction costs of contracting.
4. Location-specific advantage theory considers location factors like resources, labor costs, or infrastructure that make one location more profitable for investment than others.
5. Dunning's eclectic theory
This document provides an overview of derivative contracts, specifically forward and future contracts. It defines derivatives and describes how forward contracts are bilateral agreements between two parties to buy or sell an asset at a future date for a predetermined price. Future contracts are similar to forwards but are standardized and exchange-traded. The key differences between forwards and futures highlighted are that futures are traded on exchanges, require margin payments, follow daily settlement marked to market, and can be closed prior to delivery, whereas forwards are customized OTC contracts.
The document discusses the listing process for a public limited company to have its securities traded on a recognized stock exchange. It involves meeting minimum capital requirements, submitting required documents and information to the stock exchange, and paying listing fees depending on the company's issued capital amount. Key steps include obtaining stock exchange approval of the company's articles of association and draft prospectus, applying for listing with supporting documents, and executing a listing agreement regarding disclosure of financial information. Listing provides companies benefits like liquidity, transparency, and tax savings but also regulatory obligations.
The document discusses various considerations for international pricing strategies. It outlines different pricing methods like cost-based pricing, market-based pricing, and competitive pricing. It also discusses factors that affect international pricing such as competition, costs, product differentiation, exchange rates, and economic conditions of importing countries. The document then provides examples of pricing strategies such as using a standard worldwide price, competitive pricing based on market prices, and marginal pricing. It also gives the example of how Tata Nano might be priced if launched in the European market. Finally, it briefly introduces INCOTERMS which are international commercial terms of sale.
Exchange controls are restrictions imposed by governments on obtaining foreign currency and foreign exchange transactions. They are implemented to conserve a country's foreign exchange reserves and control exchange rates. Exchange control regulations cover payments between monetary areas and the disposition of foreign exchange receipts and incomes of residents. The key objectives of exchange controls are to maintain exchange rates, assure imports of essential goods, stimulate production of vital goods, and discourage other goods. Controls are enforced through mechanisms like compensation agreements, import restrictions, and trade control measures. Effects include reduced imports, altered terms of trade, increased domestic employment in favored industries, and incentives for smuggling or misreporting trade values.
Tariffs are taxes imposed on imported goods, while non-tariff barriers are other restrictions that make importing goods difficult. [Tariffs are used to restrict imports and protect domestic industries, while common non-tariff barriers include quotas, product standards, labeling requirements, and packaging rules.] The document outlines different types of tariffs such as specific duties based on weight or volume, ad valorem duties as a percentage of value, and countervailing duties. It also discusses non-tariff barriers such as quota systems, domestic content rules, and other regulations.
Dumping refers to selling goods in foreign markets at prices below what is charged in the home market, in order to gain market share. There are three types of dumping: intermittent, when production exceeds domestic demand; persistent, when a monopolist continuously sells excess production abroad cheaply; and predatory, when a company sells at a loss initially to drive out competitors. Countries employ anti-dumping measures like tariffs, import quotas, or bans to counter the objectives of dumping, which include entering new markets, selling surplus production, expanding trade, and growing industries.
The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
- How forward contracts allow corporations to lock in future exchange rates for currency exchanges.
- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
- The types of currency options (calls and puts) and how their values are determined by the relationship between the strike price and spot rate.
The document discusses the major participants in the foreign exchange market. The key participants include commercial banks, which provide the core market activity; foreign exchange brokers, who facilitate trading between dealers; central banks, which intervene to maintain exchange rates; multinational corporations, which hedge future cash flows; individual and small businesses conducting international transactions; and hedgers, who take opposite positions to protect against losses from currency fluctuations. The foreign exchange market operates globally 24 hours a day through networks of financial centers.
This document defines and describes various types of security and non-security marketable and non-marketable financial assets. It discusses equity shares, preference shares, bonds, debentures, convertible securities, hybrid securities, derivatives, and various money market instruments. It also covers non-security assets such as fixed deposits, gilt-edged securities, and post office savings schemes.
Accounting Standard 17 outlines requirements for segment reporting in India. It aims to provide information on different types of products/services and geographical areas to better understand enterprise performance and assess risks/returns. Key terms define segments as distinguishable components subject to different risks/returns. A reportable segment must contribute over 10% of certain financial metrics. Enterprises must disclose financial information for each reportable segment including revenue, assets, liabilities, capital expenditures, and depreciation.
Depositary receipts (DRs) like American depositary receipts (ADRs) and global depositary receipts (GDRs) allow foreign companies to list shares on an exchange outside their home country. ADRs trade on US exchanges and represent ownership of shares in a foreign company, while GDRs trade internationally. DRs offer benefits to both companies raising capital abroad and international investors, including exposure to foreign markets in familiar terms. Companies issuing DRs must comply with regulations of the foreign market and designate depositary banks and custodians to facilitate the issuance and trading of the receipts.
Tariffs are taxes imposed on imported or exported goods. There are several types of tariffs including specific tariffs (fixed amount per unit), ad valorem tariffs (fixed percentage of value), and compound tariffs (combination of specific and ad valorem). Tariffs can be used for revenue generation or protecting domestic industries. Quotas limit the quantity of goods that can be imported, and include tariff quotas, unilateral quotas negotiated bilaterally. Import licensing systems administer quota regulations by requiring licenses to import goods.
This document discusses various international financial instruments, including:
1. Equity instruments such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) which allow foreign companies to issue shares in domestic markets.
2. Debt instruments including foreign bonds issued domestically, external bonds denominated in foreign currency, Euro bonds issued internationally, and European bonds issued collectively by Euro nations.
3. Key details are provided on ADRs, GDRs, foreign bonds such as Yankee bonds, and Euro bonds which were first issued in 1963 to fund Italy's motorway network.
INTERNATIONAL BUSINESS - MG UNIVERSITY 3RD SEMESTER - FULL NOTESSooraj Krishnakumar
This document provides an overview of the modules covered in an International Business course. It discusses key topics such as the nature and dimensions of international business, the globalization process, international economic institutions, export/import procedures, foreign investment, and social and environmental issues in international business. The modules cover the international business environment, entry strategies, factors driving globalization, and challenges that companies face when operating globally.
The document discusses the Eurocurrency market and international banking. It defines the Eurocurrency market as involving transactions in currencies other than the country where the bank is located. Major centers include London, Luxembourg, and Frankfurt, which cover about 60% of the market. Political stability, good infrastructure, and favorable regulations are prerequisites for Eurocurrency centers. Interest rates are determined by supply and demand between banks. International banking includes foreign exchange, loans, and new activities like derivatives. Banks operate internationally through correspondent banks, representative offices, branches, subsidiaries, and consortium or global models.
This document discusses interest rate parity theory. It begins by defining spot and forward rates. Spot rates are prices for immediate settlement, while forward rates refer to rates for future currency delivery adjusted for cost of carry. Interest rate parity theory states that interest rate differentials between currencies will be reflected in forward premiums or discounts. The theory prevents arbitrage opportunities by making returns equal whether investing domestically or abroad when measured in the home currency. The document provides an example of covered and uncovered interest rate parity. Covered parity involves hedging exchange rate risk while uncovered parity does not. Empirical evidence shows uncovered parity often fails while covered parity generally holds for major currencies over short time horizons.
International financial management involves managing finances across borders to maximize shareholder wealth. It emerged as countries liberalized and opened their economies. Managing international finances differs from domestic finances in areas like foreign exchange risk, political risk, market imperfections, and enhanced opportunities. Companies can raise capital abroad through licensing, franchising, subsidiaries, strategic alliances, and exports. Proper international financial management helps organizations operate efficiently in global markets.
The document discusses tax aspects and incentives related to mergers, acquisitions, amalgamations, and demergers in India.
[1] It defines amalgamation under Indian tax law as the merger of one or more companies with another company, or the merger of two or more companies to form one company, where at least 90% of shareholders of the amalgamating companies become shareholders of the amalgamated company.
[2] It outlines various tax concessions for amalgamating companies, shareholders of amalgamating companies, and amalgamated companies. This includes exempting asset transfers, share transfers, and carrying forward losses.
[3] It similarly defines and discusses tax treatment for demergers, including exempting asset
The document discusses various portfolio revision strategies, including formula plans, rupee cost averaging, constant rupee plans, and variable ratio plans. Formula plans provide rules for buying and selling securities to time the market. Rupee cost averaging involves regularly investing fixed amounts to lower average costs. Constant plans maintain a fixed investment amount or ratio between aggressive and conservative holdings. Variable ratio plans change proportions based on market trends.
International distribution system: International distribution channels, types...viveksangwan007
The international distribution system consists of domestic and foreign subsystems. There are two main ways of exporting - direct and indirect. Indirect exporting is more popular for new exporters and involves using international marketing middlemen or cooperative organizations. Direct exporting involves manufacturers selling directly in foreign markets. The international distribution channel is influenced by factors like product/market characteristics, middlemen, company objectives, and environmental considerations.
This document discusses transfer pricing, which refers to the prices charged for goods, services, or assets transferred between divisions within the same company. It covers several key points:
1. Transfer pricing is important for performance evaluation and goal congruence between divisions. Various transfer pricing methods can be used, including cost-plus, negotiated prices, and market prices.
2. The choice of transfer pricing method impacts divisional behavior and incentives. Cost-based methods may not incentivize cost reductions, while market prices promote competitiveness.
3. Internationally, transfer prices must comply with the arm's length principle of being comparable to prices charged between unrelated parties. Application of this standard varies between countries.
This document discusses objectives and methods for transfer pricing within companies. The key objectives are to provide information for cost-benefit tradeoffs, induce goal-aligned decisions, and measure economic performance simply. Methods include market prices, cost-based prices using standard or actual costs plus a markup, and negotiated prices. Ideal transfer pricing considers competence, open communication, market prices when available, and full information sharing, but constraints like limited markets or excess/short capacity complicate pricing.
The document discusses the listing process for a public limited company to have its securities traded on a recognized stock exchange. It involves meeting minimum capital requirements, submitting required documents and information to the stock exchange, and paying listing fees depending on the company's issued capital amount. Key steps include obtaining stock exchange approval of the company's articles of association and draft prospectus, applying for listing with supporting documents, and executing a listing agreement regarding disclosure of financial information. Listing provides companies benefits like liquidity, transparency, and tax savings but also regulatory obligations.
The document discusses various considerations for international pricing strategies. It outlines different pricing methods like cost-based pricing, market-based pricing, and competitive pricing. It also discusses factors that affect international pricing such as competition, costs, product differentiation, exchange rates, and economic conditions of importing countries. The document then provides examples of pricing strategies such as using a standard worldwide price, competitive pricing based on market prices, and marginal pricing. It also gives the example of how Tata Nano might be priced if launched in the European market. Finally, it briefly introduces INCOTERMS which are international commercial terms of sale.
Exchange controls are restrictions imposed by governments on obtaining foreign currency and foreign exchange transactions. They are implemented to conserve a country's foreign exchange reserves and control exchange rates. Exchange control regulations cover payments between monetary areas and the disposition of foreign exchange receipts and incomes of residents. The key objectives of exchange controls are to maintain exchange rates, assure imports of essential goods, stimulate production of vital goods, and discourage other goods. Controls are enforced through mechanisms like compensation agreements, import restrictions, and trade control measures. Effects include reduced imports, altered terms of trade, increased domestic employment in favored industries, and incentives for smuggling or misreporting trade values.
Tariffs are taxes imposed on imported goods, while non-tariff barriers are other restrictions that make importing goods difficult. [Tariffs are used to restrict imports and protect domestic industries, while common non-tariff barriers include quotas, product standards, labeling requirements, and packaging rules.] The document outlines different types of tariffs such as specific duties based on weight or volume, ad valorem duties as a percentage of value, and countervailing duties. It also discusses non-tariff barriers such as quota systems, domestic content rules, and other regulations.
Dumping refers to selling goods in foreign markets at prices below what is charged in the home market, in order to gain market share. There are three types of dumping: intermittent, when production exceeds domestic demand; persistent, when a monopolist continuously sells excess production abroad cheaply; and predatory, when a company sells at a loss initially to drive out competitors. Countries employ anti-dumping measures like tariffs, import quotas, or bans to counter the objectives of dumping, which include entering new markets, selling surplus production, expanding trade, and growing industries.
The document discusses currency derivatives, including forward contracts, futures contracts, and options. It provides details on:
- How forward contracts allow corporations to lock in future exchange rates for currency exchanges.
- How futures contracts standardize currency amounts and settlement dates for exchange on an futures exchange.
- The types of currency options (calls and puts) and how their values are determined by the relationship between the strike price and spot rate.
The document discusses the major participants in the foreign exchange market. The key participants include commercial banks, which provide the core market activity; foreign exchange brokers, who facilitate trading between dealers; central banks, which intervene to maintain exchange rates; multinational corporations, which hedge future cash flows; individual and small businesses conducting international transactions; and hedgers, who take opposite positions to protect against losses from currency fluctuations. The foreign exchange market operates globally 24 hours a day through networks of financial centers.
This document defines and describes various types of security and non-security marketable and non-marketable financial assets. It discusses equity shares, preference shares, bonds, debentures, convertible securities, hybrid securities, derivatives, and various money market instruments. It also covers non-security assets such as fixed deposits, gilt-edged securities, and post office savings schemes.
Accounting Standard 17 outlines requirements for segment reporting in India. It aims to provide information on different types of products/services and geographical areas to better understand enterprise performance and assess risks/returns. Key terms define segments as distinguishable components subject to different risks/returns. A reportable segment must contribute over 10% of certain financial metrics. Enterprises must disclose financial information for each reportable segment including revenue, assets, liabilities, capital expenditures, and depreciation.
Depositary receipts (DRs) like American depositary receipts (ADRs) and global depositary receipts (GDRs) allow foreign companies to list shares on an exchange outside their home country. ADRs trade on US exchanges and represent ownership of shares in a foreign company, while GDRs trade internationally. DRs offer benefits to both companies raising capital abroad and international investors, including exposure to foreign markets in familiar terms. Companies issuing DRs must comply with regulations of the foreign market and designate depositary banks and custodians to facilitate the issuance and trading of the receipts.
Tariffs are taxes imposed on imported or exported goods. There are several types of tariffs including specific tariffs (fixed amount per unit), ad valorem tariffs (fixed percentage of value), and compound tariffs (combination of specific and ad valorem). Tariffs can be used for revenue generation or protecting domestic industries. Quotas limit the quantity of goods that can be imported, and include tariff quotas, unilateral quotas negotiated bilaterally. Import licensing systems administer quota regulations by requiring licenses to import goods.
This document discusses various international financial instruments, including:
1. Equity instruments such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) which allow foreign companies to issue shares in domestic markets.
2. Debt instruments including foreign bonds issued domestically, external bonds denominated in foreign currency, Euro bonds issued internationally, and European bonds issued collectively by Euro nations.
3. Key details are provided on ADRs, GDRs, foreign bonds such as Yankee bonds, and Euro bonds which were first issued in 1963 to fund Italy's motorway network.
INTERNATIONAL BUSINESS - MG UNIVERSITY 3RD SEMESTER - FULL NOTESSooraj Krishnakumar
This document provides an overview of the modules covered in an International Business course. It discusses key topics such as the nature and dimensions of international business, the globalization process, international economic institutions, export/import procedures, foreign investment, and social and environmental issues in international business. The modules cover the international business environment, entry strategies, factors driving globalization, and challenges that companies face when operating globally.
The document discusses the Eurocurrency market and international banking. It defines the Eurocurrency market as involving transactions in currencies other than the country where the bank is located. Major centers include London, Luxembourg, and Frankfurt, which cover about 60% of the market. Political stability, good infrastructure, and favorable regulations are prerequisites for Eurocurrency centers. Interest rates are determined by supply and demand between banks. International banking includes foreign exchange, loans, and new activities like derivatives. Banks operate internationally through correspondent banks, representative offices, branches, subsidiaries, and consortium or global models.
This document discusses interest rate parity theory. It begins by defining spot and forward rates. Spot rates are prices for immediate settlement, while forward rates refer to rates for future currency delivery adjusted for cost of carry. Interest rate parity theory states that interest rate differentials between currencies will be reflected in forward premiums or discounts. The theory prevents arbitrage opportunities by making returns equal whether investing domestically or abroad when measured in the home currency. The document provides an example of covered and uncovered interest rate parity. Covered parity involves hedging exchange rate risk while uncovered parity does not. Empirical evidence shows uncovered parity often fails while covered parity generally holds for major currencies over short time horizons.
International financial management involves managing finances across borders to maximize shareholder wealth. It emerged as countries liberalized and opened their economies. Managing international finances differs from domestic finances in areas like foreign exchange risk, political risk, market imperfections, and enhanced opportunities. Companies can raise capital abroad through licensing, franchising, subsidiaries, strategic alliances, and exports. Proper international financial management helps organizations operate efficiently in global markets.
The document discusses tax aspects and incentives related to mergers, acquisitions, amalgamations, and demergers in India.
[1] It defines amalgamation under Indian tax law as the merger of one or more companies with another company, or the merger of two or more companies to form one company, where at least 90% of shareholders of the amalgamating companies become shareholders of the amalgamated company.
[2] It outlines various tax concessions for amalgamating companies, shareholders of amalgamating companies, and amalgamated companies. This includes exempting asset transfers, share transfers, and carrying forward losses.
[3] It similarly defines and discusses tax treatment for demergers, including exempting asset
The document discusses various portfolio revision strategies, including formula plans, rupee cost averaging, constant rupee plans, and variable ratio plans. Formula plans provide rules for buying and selling securities to time the market. Rupee cost averaging involves regularly investing fixed amounts to lower average costs. Constant plans maintain a fixed investment amount or ratio between aggressive and conservative holdings. Variable ratio plans change proportions based on market trends.
International distribution system: International distribution channels, types...viveksangwan007
The international distribution system consists of domestic and foreign subsystems. There are two main ways of exporting - direct and indirect. Indirect exporting is more popular for new exporters and involves using international marketing middlemen or cooperative organizations. Direct exporting involves manufacturers selling directly in foreign markets. The international distribution channel is influenced by factors like product/market characteristics, middlemen, company objectives, and environmental considerations.
This document discusses transfer pricing, which refers to the prices charged for goods, services, or assets transferred between divisions within the same company. It covers several key points:
1. Transfer pricing is important for performance evaluation and goal congruence between divisions. Various transfer pricing methods can be used, including cost-plus, negotiated prices, and market prices.
2. The choice of transfer pricing method impacts divisional behavior and incentives. Cost-based methods may not incentivize cost reductions, while market prices promote competitiveness.
3. Internationally, transfer prices must comply with the arm's length principle of being comparable to prices charged between unrelated parties. Application of this standard varies between countries.
This document discusses objectives and methods for transfer pricing within companies. The key objectives are to provide information for cost-benefit tradeoffs, induce goal-aligned decisions, and measure economic performance simply. Methods include market prices, cost-based prices using standard or actual costs plus a markup, and negotiated prices. Ideal transfer pricing considers competence, open communication, market prices when available, and full information sharing, but constraints like limited markets or excess/short capacity complicate pricing.
These guidelines provide principles and best practices for effective pricing decisions. Managers should 1) focus on specific market segments to gain advantage, 2) set prices early in product development to identify unprofitable ideas, and 3) make pricing decisions in the context of an overall marketing strategy oriented toward profits rather than just market share or volume. A pricing strategy audit should assess consistency with objectives, customer value perceptions, relevant costs, price decision characteristics, and legal implications.
This document discusses measuring performance at the strategic business unit (SBU) level. It covers several key points:
1. Strategies can be found at the corporate level for the whole organization and at the business unit level for divisions within the organization. Consistency is needed across levels.
2. SBUs are autonomous organizational units that control most factors affecting long-term performance.
3. Strategy concerns and options differ at the corporate versus business unit levels. Business unit strategies focus on competitive advantage in each industry.
Transfer pricing refers to the value placed on goods and services transferred between divisions of the same organization. It is a key determinant of revenue for selling divisions and expenses for buying divisions. Objectives of transfer pricing include providing relevant information for decisions, inducing goal alignment, and measuring performance. Transfer prices are typically based on market prices if available, or estimated market prices. If market prices cannot be determined, cost-based transfer prices using standard costs plus a profit margin are used. There are different methods for calculating and administering transfer prices, including negotiation between divisions and arbitration by headquarters if disagreements occur.
This document discusses pricing strategies and considerations for companies. It begins by outlining challenges companies face from pricing pressures. It then defines price and discusses pricing objectives, analyzing the pricing situation which includes customer sensitivity, costs, competitors, and legal issues. Common pricing strategies for new and existing products are described such as skimming, penetration, and intermediate strategies. Factors for determining specific prices and policies to manage pricing strategies are also covered. The document provides an overview of developing and implementing effective pricing approaches.
This document discusses profit centers and transfer pricing. It defines a profit center as a division of an organization where financial performance is measured based on revenues and costs. Transfer price refers to the price used for goods and services transferred between divisions, and there are several methods for determining transfer price, including cost-based, market-based, and negotiated prices. The document also outlines criteria for evaluating profit center performance and categories of costs and revenues considered.
The document provides an overview of quantitative market research methods. It explains that quantitative research is numerically oriented and involves statistical analysis. Common quantitative techniques include surveys using post, phone, email, web or in-person methods to collect standardized data from large samples. Quantitative research provides insights through metrics like ratings, but does not explore qualitative factors in depth.
This document provides strategies for pricing new products and services. It discusses 6 factors to consider when determining price: 1) Pricing approach and strategies, 2) Costing, 3) Competition and competitors' prices, 4) Market share and dominance, 5) Customer behavior and price sensitivity, and 6) Regulatory framework. The document uses these factors to analyze pricing approaches like premium pricing, penetration pricing, and price skimming. It emphasizes the importance of considering multiple internal and external factors when setting prices.
This document discusses pricing strategies and factors that influence pricing decisions. It defines price as the exchange value of a product and explains that pricing objectives may include maximizing profits, achieving competitive prices, market share goals, and accounting for customer affordability. Pricing methods include cost-based pricing, demand-based pricing, competition-based pricing, and regulated pricing. Key factors that influence pricing include costs, demand elasticity, the product lifecycle, competition, distribution channels, customer characteristics, economic conditions, and government policies.
The document discusses industrial pricing strategies and policies. It examines factors to consider for pricing strategies like objectives, demand analysis, cost analysis and competitive analysis. It also discusses different pricing strategies for competitive bidding, new products, and across a product's lifecycle. Finally, it outlines common industrial pricing policies including list prices, trade discounts, quantity discounts, cash discounts, and geographical pricing.
This document discusses pricing strategies and considerations for marketing communicators. It defines price and explores factors that influence pricing decisions, both internal like costs and objectives, and external like competitors and demand. The document outlines general pricing approaches such as cost-based, value-based, and competition-based pricing. It also discusses strategies for new product pricing, pricing product mixes, and adjusting prices over time including discounts, segmented pricing, and psychological pricing techniques.
This document discusses various pricing strategies and methods. It covers:
1. Defining price and the factors that affect pricing like costs, demand, competition.
2. Different cost-based pricing methods like cost-plus and target return on investment.
3. Value-based methods like perceived value and customer value pricing.
4. Competition-based methods like going-rate, pricing above/below competitors.
5. Other strategies like price lining, product life cycle pricing, and responding to price changes.
A lot of companies reach their customers and provide their services through a network of local/regional branches. Typically the branch manager reports to a central head office. This has many advantages: proximity to customers;
knowledge of local customs and buying habits; dispersed logistics (sometimes a negative); closer relationships with local suppliers and so on. But such an organisational model demands clarity on a number of important decisions that can either be made locally or centrally.
The managers at the centre and in the branch both need to know where authority and responsibility for enterprise lie, and who is accountable for what. This needs thinking through at a high level. The business model must
have a design in which it is clear where decisions are best taken so confusion cannot reign nor mistakes affect profit.
This document sets out some guidelines on accountability and decision taking in all the key areas that can impact on profit: Pricing; Terms and conditions for trading; Procurement and inventory; Trading policies; Payroll and
operating costs; Managing employees; and Processes and systems.
Broadly there are two types of organisational model for managing a branch networked business. The decision on which to embrace is determined by the overall choice of business model and contextual matters like the scale of
operations, which are outside the scope of this book.
Our view is that most businesses ought probably to default to the loose/tight ‘Devolved’ model and its related protocols and structures unless there is positive economic advantage of the type described in the ‘Centric’ alternative.
There is one good reason for this that stands out from the others - it seeks to build clear accountability for profit around a manager carefully selected for the entrepreneurial qualities they possess. In short, get the right person and give them as much responsibility that they ought reasonably be able to handle.
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the market will bear and include skimming pricing, penetration pricing, and competition-oriented pricing like premium, discounted, and parity pricing. Other methods are product line pricing, tender pricing, affordability-based pricing, and differentiated pricing.
The document discusses developing pricing strategy and provides information on:
- Factors that influence pricing like costs, demand, competition
- Common pricing mistakes like not adjusting for market changes
- Consumer psychology related to pricing like reference prices
- Methods for setting prices like cost-based, demand-based, competition-oriented pricing
- Steps in setting price which include selecting objectives, determining demand, analyzing costs and competition
Category management is a crucial aspect of procurement as it goes beyond simply acquiring goods and services. Through the development of categories, the organization can better understand its spending patterns and identify critical areas where savings are possible. Selling at the right price is one of the secrets to a flourishing business. If your goods are cheap, you might sell more but find it difficult to make a profit. On the other hand, if your goods are too expensive, customers will shop at competitor retailers, causing you to lose market share. Category management helps retailers cope with the complexity of their operations and maximize their return on inventory investment. Improvements in product range and merchandising enhance shopper satisfaction and store loyalty and reduce stockouts. These factors help to lift sales. Pricing is one of the most important factors in the field of Trade. Pricing to a commodity means attaching value to the product. To purchase or sell it both the consumer taking the product and the seller giving off the product benefits from the 'value' in return for some bearing.
Cost-based pricing methods include mark-up pricing, absorption cost pricing, target rate of return pricing, and marginal cost pricing. Demand-based pricing methods are determined by what the traffic can bear, skimming pricing, and penetration pricing. Other pricing methods include competition-oriented pricing, product line pricing, tender pricing, affordability-based pricing, and differentiated pricing. Pricing strategies must be appropriate for achieving the desired objectives of the firm.
This document provides an overview of learning objectives for accounting, differences between textbook and real-life accounting transactions, documentation for various transaction types including purchases, sales and other transactions, and the importance of supporting documents for transactions. The key learning objectives are to learn real-life accounting, documentation, and how to use Tally accounting software. Documentation for various transaction types like purchases, sales and other transactions like salaries are explained along with the purpose and issuer of documents like quotations, purchase orders, invoices etc. It emphasizes that in real accounting, transactions have multiple supporting documents and involve additional steps compared to simple examples in textbooks. Further, it states that every transaction must have supporting documentation, otherwise it would be an illegal transaction.
Globalization refers to the increasing interconnectedness and interdependence of peoples and countries resulting from the growing scale of cross-border trade and financial flows, as well as the spread of technology. It began increasing significantly in the late 20th century due to advances in transportation and communication technologies. Globalization has economic, financial, ecological, political, sociological, and technological dimensions and has benefits such as increased trade, economic growth, access to affordable goods, and standard of living, but also costs such as loss of manufacturing jobs in high-income countries, environmental degradation, and social pressures from migration. Foreign direct investment is a major factor driving globalization as companies invest across borders.
- The document provides a weekly update on GST from the National Academy of Customs, Indirect Taxes and Narcotics.
- It summarizes that gross GST revenue collected in January 2022 was Rs. 1,38,394 crore, which was 15% higher than the same period last year. Revenues from import of goods were 26% higher.
- Proposed amendments to the CGST Act through the Finance Bill 2022 are aimed at aligning legal provisions with the GSTR-1/GSTR-3B return filing system and include measures for trade facilitation and compliance.
This document provides an introduction to the accounting software Tally. It discusses Tally's architecture and how it differs from manual accounting. The key aspects of Tally covered include how to open it, the screen layout, and the setup phase. The setup phase involves creating a company, defining security controls, creating groups and ledger accounts, and creating voucher types to record transactions. Creating a company establishes the basis for Tally's architecture and allows the consolidation of all business transactions in one place for reporting.
Globalization boosts technological development by allowing easier access to foreign knowledge and increases capital and labor mobility between countries. It also improves transportation infrastructure to boost global trade, enables the growth of multinational companies interacting worldwide, and lowers trade tariffs and barriers to facilitate greater economic integration globally.
This document provides an overview of setting up a company in Tally, including details on:
1) Creating a company by providing its name, address, statutory compliance details like country, currency, etc.
2) Setting the currency details like symbol, decimal places, and representation system.
3) Defining the fiscal year vs book year of the company.
4) Specifying if the company deals with goods, services, or both and selecting accounts with or without inventory accordingly.
5) A video is provided on demonstrating the company creation process in Tally.
6) Hands-on practice is suggested for teams to create and alter company details without actually deleting the company.
GST registration requires aggregate turnover of over Rs. 40 lakhs for goods and Rs. 20 lakhs for goods and services in normal states, and Rs. 20 lakhs for both goods and services in special category states. Documents and information required for GST registration include a provisional ID, password, contact information, bank account details, and proof of business constitution such as partnership deed, registration certificate, photos of owners/partners, authorized signatory proof, and bank statement details.
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
How to Make a Field Mandatory in Odoo 17Celine George
In Odoo, making a field required can be done through both Python code and XML views. When you set the required attribute to True in Python code, it makes the field required across all views where it's used. Conversely, when you set the required attribute in XML views, it makes the field required only in the context of that particular view.
The simplified electron and muon model, Oscillating Spacetime: The Foundation...RitikBhardwaj56
Discover the Simplified Electron and Muon Model: A New Wave-Based Approach to Understanding Particles delves into a groundbreaking theory that presents electrons and muons as rotating soliton waves within oscillating spacetime. Geared towards students, researchers, and science buffs, this book breaks down complex ideas into simple explanations. It covers topics such as electron waves, temporal dynamics, and the implications of this model on particle physics. With clear illustrations and easy-to-follow explanations, readers will gain a new outlook on the universe's fundamental nature.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
ISO/IEC 27001, ISO/IEC 42001, and GDPR: Best Practices for Implementation and...PECB
Denis is a dynamic and results-driven Chief Information Officer (CIO) with a distinguished career spanning information systems analysis and technical project management. With a proven track record of spearheading the design and delivery of cutting-edge Information Management solutions, he has consistently elevated business operations, streamlined reporting functions, and maximized process efficiency.
Certified as an ISO/IEC 27001: Information Security Management Systems (ISMS) Lead Implementer, Data Protection Officer, and Cyber Risks Analyst, Denis brings a heightened focus on data security, privacy, and cyber resilience to every endeavor.
His expertise extends across a diverse spectrum of reporting, database, and web development applications, underpinned by an exceptional grasp of data storage and virtualization technologies. His proficiency in application testing, database administration, and data cleansing ensures seamless execution of complex projects.
What sets Denis apart is his comprehensive understanding of Business and Systems Analysis technologies, honed through involvement in all phases of the Software Development Lifecycle (SDLC). From meticulous requirements gathering to precise analysis, innovative design, rigorous development, thorough testing, and successful implementation, he has consistently delivered exceptional results.
Throughout his career, he has taken on multifaceted roles, from leading technical project management teams to owning solutions that drive operational excellence. His conscientious and proactive approach is unwavering, whether he is working independently or collaboratively within a team. His ability to connect with colleagues on a personal level underscores his commitment to fostering a harmonious and productive workplace environment.
Date: May 29, 2024
Tags: Information Security, ISO/IEC 27001, ISO/IEC 42001, Artificial Intelligence, GDPR
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How to Build a Module in Odoo 17 Using the Scaffold MethodCeline George
Odoo provides an option for creating a module by using a single line command. By using this command the user can make a whole structure of a module. It is very easy for a beginner to make a module. There is no need to make each file manually. This slide will show how to create a module using the scaffold method.
it describes the bony anatomy including the femoral head , acetabulum, labrum . also discusses the capsule , ligaments . muscle that act on the hip joint and the range of motion are outlined. factors affecting hip joint stability and weight transmission through the joint are summarized.
Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
2. INTRODUCTION–TRANSFER PRICE
The price at which divisions of a company
transact with each other. Transactions may
includes the trade of supplies or labour
between departments. Transfer prices are
used when Individual entities of a larger multi
entry firm are treated and measured as
separately run entities.
3. DEFINITION-TRANSFER PRICING
Transfer pricing is the setting of the price for
goods and services sold between related
legal entities with an enterprise.
E.g.: If a Subsidiary Company sells goods to
a parent company , the cost of those goods
is the transfer price.
4. Objectives of Transfer pricing
1. To provide each division with relevant info required to make an
optimal decision
2. To promote goal congruence
3. To motivate divisional managers to take good economic
decision which will improve the divisional profits and ultimately
the overall profits
4. To foster a commercial attitude in those who are responsible for
the performance of profit centres
5. To optimize the allocation of companies financial resources
6. To optimize the profit of a concern over a short period
7. To help in measuring divisional performance
8. To estimate accurate earnings on proposed investment
decisions
9. To assist in decision making for buy or sell, or process it further
and choosing a better alternative production methods
10. To motivate divisional manager and to retain divisional
autonomy
11. To ensure minimum intervention by top management
5. Criteria for transfer pricing system
1. Neutrality – system should not distort the
way in which the business behaves, a
control system reduces the efficiency of the
process is clearly unsatisfactory
2. Equity – a system should not prevent the
decisions from reporting meaningful profit
figures, the whole idea of the divisional
organisation is debased if the system
prevents this from happening
3. Administrative convenience – system
should not be clumsy and expensive to
operate that it starts to cost more than the
benefits it provides
6. Requisites of a sound transfer pricing system
1. It should be simple to understand and easy to operate
2. It should enable fixation of fair transfer prices for output
transferred or service rendered
3. The divisional manager must be given autonomy and freedom to
sell in the open market. Does not mean complete autonomy
4. The unit/division should have free access to various sources of
market information
5. Negotiations to be there for buying and selling divisions
6. Rules must be framed to guide negotiations between divisions
7. In case of failures it should be resolved through arbitration
8. Top management should discourage prolonged arguments
between divisions
9. Transfer prices to be reviewed annually or as dictated by the
demand and supply conditions in the market
10. When transfer prices are based on market price, long term
competitive and normal prices must be considered
11. Transfer pricing and ground rules can be reviewed periodically
depending on change in business conditions
7. Benefits of transfer pricing policy
1. Divisional performance evaluation is made easier
2. It will develop healthy interdivisional competitive spirit
3. Management by exception is made possible
4. It helps in coordination of divisional objectives in achieving
org goals
5. It provides useful info to the top management in making
policy decisions like expansions, subcontracting, closing
down of a division, make or buy decisions
6. Transfer price will act as a check on supplier’s prices
7. It fosters economic entity and free enterprise system
8. It helps in self-advancement, generates high productivity
and encouragement to meet the competitive economy
9. It optimizes the allocation of company’s financial
resources based on the relative performance of various
profit centres, which in turn are influenced by transfer
pricing policies
9. Revenue Basis : The Manager of a subsidiary
treats its same manner that he would price of a
product sold outside of the company. It forms part of
the revenue of his subsidiary, and is therefore
crucial to the financial performance on which he is
judged .
Preferred Customers : If the Manager of a
subsidiary is given the choice of selling either to a
downstream subsidiary or to outside customers,
then an excessively low transfer price will lead the
manager to sell exclusively to outside customers,
and to refuse orders originating from the
downstream subsidiary.
10. Preferred Suppliers : If the manager of
a downstream subsidiary is given the choice of
buying either from an upstream subsidiary or an
outside supplier, then an excessively high transfer
price will cause the manager to buy exclusively from
outside suppliers. As a result, the upstream
subsidiary may have too much unused capacity, and
will have to cut back on its expenses in order to
remain profitable.
11. METHODS – TRANSFER PRICING
Market Based
Adjusted Market
rate
Negotiated
Contribution
Margin
Cost – Plus
Cost Based
12. Market Based Transfer pricing : The
simplest and most elegant transfer price is to use the
market price. By doing so, the upstream subsidiary can
sell either internally or externally and earn the same
profit with either option. It can also earn the highest
possible profit, rather than being subject to the odd
profit vagaries that can occur under mandated pricing
schemes.
Adjusted Market Rate Transfer Pricing : If
it is not possible to use the market pricing technique just
noted, then consider using the general concept, but
incorporating some adjustments to the price. For
example, you can reduce the market price to account for
the presumed absence of bad debts, since corporate
management will likely intervene and force a payment if
there is a risk of non-payment
13. Negotiated Transfer Pricing : It may be
necessary to negotiate a transfer price between subsidiaries,
without using any market price as a baseline. This situation
arises when there is no discernible market price because the
market is very small or the goods are highly customized. This
results in prices that are based on the relative negotiating
skills of the parties.
Contribution margin Transfer Pricing : If there
is no market price at all from which to derive a transfer price,
then an alternative is to create a price based on a
component’s contribution Margin. In this case, markup
depends on overall contribution to organisational profit
14. Difficulties in identification of market price
Prices on the open market will vary between
suppliers because of :
1. Special discount for particular customers
2. Quantity discounts
3. The extent to which delivery charges are
included
4. Deliberate dumping (at distress prices) by a
supplier who has built-up excess
inventories
5. The extent of after sales service provided
15. Advantages
1. Market price truly represents opportunity
cost
2. Actual historical costs fluctuate from time to
time and are not readily available. Whereas
market prices are easily available
3. The current performance of both the buying
and supplying divisions can be assessed in
the light of currently existing conditions
4. Variances between current and predicted
prices provide useful control data
16. Limitations
1. Resistance from the buying divisions
2. Market price fails to become opportunity cost when the company is a
price leader or a monopolist
3. Market prices may not be available for intermediate products
4. Cost prices are available from internal records, whereas market prices
varies
5. Difficulties in interpretation of market price – ex-factory, price to the
wholesalers, price to the consumers
6. Market prices may be fluctuating, hence there may be difficulties in
fixation of these prices
7. Market price info may not be available readily, if product is made to
the specification of the receiving division
8. When production is for captive consumption and when the market
price may not prevail to that product may present difficulty in fixation
of transfer price
9. In inflationary conditions the market price itself will not be a good
measure to fix transfer price due to frequent change in the prices
10. Inclusion of profit in stocks will not be allowed by the auditors
11. Market prices consist of selling and distribution overheads which will
not be incurred in inter unit transfer
17. Principles
1. Inter division transfer prices should be
determined by negotiation between the
buyer and the seller
2. Negotiators should have access to full data
on alternative sources and markets and
information about market prices
3. Buyers and sellers should be completely
free to deal outside the company
18. Limitations
1. Business like attitude amongst divisions of a company
2. Agreed transfer price between divisions of a company will
depend on negotiating skills and bargaining power of the
managers involved and the final outcome may not be close to
optimal level
3. There is clash of interest and management intervention
becomes necessary
4. Time consuming exercise for the managers of the divisions
5. Personal bias may exist between divisional managers who sit
for negotiating the transfer price
6. The more powerful division may have its way
7. Goal congruence may be sacrificed, adversely affecting the
overall company profits
8. In fixation of negotiated prices, both the units should spend
enormous time and resources
9. Measurement of divisional profitability may depend on the
negotiating skills of the managers who have unequal bargaining
powers
19. Opportunity cost transfer pricing
It recognises the minimum price that a selling
division would be willing to accept and the
maximum price that the buying division will be
willing to pay.
These minimum and maximum prices
correspond to the opportunity cost of
transferring goods and services internally
within the organisation
It is ideal for the conditions when selling
division cannot sell and buying division cannot
buy in perfectly competitive prices
20. Determination of opportunity cost transfer pricing
1. For a selling division, the opportunity cost of transfer is greater
of the following;
Market price of transferred product for an outside sale
Differential production cost of transferred product
2. For a buying division the opportunity cost of transfer is lesser of
the following:
Purchase price required to be paid if it is purchased in the open
market
Profit that would be lost from the final product if the transferred
unit could not be obtained at an economic price
A transfer is in the best economic interest of the company if the
opportunity cost for the selling division is less than the
opportunity cost for the buying division
As long as the transfer price is greater than the opportunity cost
of the selling division and less than the opportunity cost of the
buying division a transfer will be encouraged.
21. Limitations
1. Since minimum and maximum price is set
between divisions, clashes can arise
2. The more powerful division may exercise
heavier bargaining power
3. Company’s overall interest may be
sacrificed or the divisional managers may
be demotivated
22. Dual transfer pricing
One single transfer price may not be meet
the objective of goal congruence in an org.
Two different prices are arrived at by using
two different methods
This method is not popular as it creates
confusion both to the buyer and seller
divisions
It is not widely used in practice
It is a method that appears to offer an
optimal solution based on the idea that
there is no necessity to have a single
transfer price
23. Transfer pricing when unit variable cost and
selling price are not constant
Where competitive market prices exists and
the supplying division has no idle capacity and
if variable unit cost and unit selling price are
not constant then the minimum transfer price
can be fixed at:
Additional outlay cost per unit incurred to the
point of transfer + opportunity costs per unit to
the supplying division
24. Cost plus Transfer Pricing: If there is no market
price at all on which to base a transfer price, you could
consider using a system that creates a transfer price based
on the cost of the components being transferred. The best
way to do this is to add a margin onto the cost, where you
compile the standard cost of a component, add a standard
profit margin, and use the result as the transfer price.
Cost Based Transfer Pricing : You can have each
subsidiary transfer its products to other subsidiaries at cost,
after which successive subsidiaries add their costs to the
product. This means that the final subsidiary that sells the
completed goods to a third party will recognize the entire
profit associated with the product.
25. Cost based transfer pricing methods
1. Actual cost of production – the transfer price will be determined based
on the cost of production arrived as per traditional method
2. Marginal cost of production – variable cost of supplying division and
no fixed cost. Major disadvantage is that transferring division incurs
the fixed cost and not the receiving division
3. Full cost – actual cost of production with all overheads (including
selling and distribution)
4. Full cost plus – full cost of sales plus mark up or an allowance of
profit. Performance of each division and each unit can be measured
along with efficiency
5. Standard cost – cost which is predetermined based on scientific
analysis and management’s view of efficient operations and relevant
expenditure. Standards may be unrealistic or outdated creating an
unfair price for any of the divisions
6. Standard cost plus lumpsum – standard variable costs be used
together with a predetermined amount allocated to the selling division.
A predetermined charge is made for fixed costs plus a lump sum
profit. The lumpsum amount is calculated based on expected long
run transactions between the two divisions
26. Advantages
1. Profitability of the concern based on ROI is
the main barometer on which efficiency of
the management is evaluated
2. Better interfirm comparison based on the
ROI is possible
3. Cost based price is criticised when the
same is higher than the market price either
due to inefficiency or under capacity
working in the selling unit
27. Limitations
1. Profit added to the cost is fictitious and
unnecessarily inflates the asset value under
the same management
2. Auditors do not accept profits in stock
valuation
3. Inefficiency of the transferor is borne by the
receiver
4. ROI may be the good measure for
controlling performances, but this should
not be accepted very rigidly
28. Transfer pricing – general rule
Buying division makes the economic decisions that are
optimal from the point of the total company is to transfer at
Marginal/incremental cost to the selling division
+
Implicit opportunity cost to organisation if goods are transferred
internally
The general criterial for fixing transfer prices are:
1. Goal congruence in decision making
2. Management efforts
3. Segment performance valuation
4. Sub unit autonomy and motivation value
29. General conflicts in fixation of transfer prices
1. Goal congruence Vs performance
evaluation
2. Goal congruence Vs Divisional autonomy
3. Performance evaluation Vs profitability
30. Proposals for resolving transfer pricing
conflicts
1. Dual rate transfer pricing system & two part transfer pricing
system
2. Compromise between divisional independence and corporate
coordination is inherent in any such structure
3. Transfer price should be established very carefully as it can act
as an disincentive to the managers concerned
4. Transfer price should not be fixed to benefit one unit at the cost
of other units
5. The calculation of transfer prices should be integrated into
group planning and budgeting system
6. Managers should be made fully aware of the effects of their
activities on other divisions and not on the attainment of the
short and long term objectives of the firm
31. Guiding principles in fixing transfer prices
1. Incentive to the manager of the supplier
division
2. Goal congruence between divisional and
organisational objectives
3. Autonomy for divisional managers
32. International transfer pricing
1. Distinguishing characteristics for MNCs is
its ability to move money and profits among
its affiliated companies through internal
transfer mechanisms
2. Mechanisms include transfer prices on
goods and services traded internally,
intercompany loans, dividend payments,
leading and lagging intercompany
payments and fee and other royalty
charges
33. Transfer pricing is a device used by MNCs
to price intercorporate exchange of goods,
services, technology and capital in a
manner to maximise overall after tax profit.
These products and factor flow range from
intermediate and finished goods to less
tangible items such as management skills,
trademarks and patents
34. Aspects of International transfer pricing
Financial aspects:
1. To minimise the implications of tax
2. Transfer price between nations can be manipulated to minimize
tax or import duty liability or transfer funds.
Strategic aspects: weapon in the overall marketing strategy,
profits can be concentrated, by vertical integration
Government attitude: very significant financial gain, checks the
price that it is not artificially low if it is a exporting country. In
the importing country tax authorities are at a look out for
unreasonably high transfer prices which will reduce local profits
and liability of income tax. Customs authorities will have a
close watch
Company attitude: financial and strategic aims will usually be
with the aim of good corporate management
35. Objectives of International transfer pricing
1. Goal congruence
2. Transfer price prima facie should be fair
3. Impact on duty will be reduced, but to be careful while fixing up
the transfer price
4. Profit repatriation will be difficult in some countries. In that case
price to be fixed which will be advantageous to both the
countries
5. In case of two foreign subsidiaries they must deal with arm’s
length price
6. Joint ventures will create additional complications in transfer
pricing. The transfer price must satisfy both the home and
foreign ventures