Page 186 - International Marketing

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188 International Marketing BRILLIANT'S

loss. The break even chart is an excellent instrument panel for guidance
in controlling the business. The break even price may be determined either
in terms of physical units or in terms of sales value in rupees. Break even
analysis not only highlights the areas of economic strength and weaknesses
in the firm but also sharpens the focus on certain leverages which can be
operated upon to enhance its profitability. It is helpful for management to
know the required volume of sales to maintain the previous level of profit.
On the basis of knowledge and experience it will be much easier for the
management to judge whether the required increase in sales will be feasible
or not. It will enable management to know whether to expand production
capacity or not through the installation of additional equipments. In addition,
it is also useful in making decision regarding dropping and/or adding any
product in the product line. It will also guide the management in making or
buying certain components from outside suppliers or manufacture it. 
TRANSFER PRICING

Q.29. Define transfer pricing with recent examples and implica-
tions. [MBA(FT) 2007]
OR
Write a short note on: Transfer pricing and its examples.
[MBA(FT) 2005]
OR
Write short note on: Transfer pricing and its international mar-
keting implications. [MBA(FT) 2004]
Introduction
In international marketing, different units under the same corporate
body but located in different foreign countries, exchange goods and ser-
vices among themselves. The pricing of such exchanges of goods and
services is known as transfer pricing. A rational system of transfer pricing
is required to ensure profitability at each level. Ideally, the decentralized
profit center is a device for measuring and evaluating performance as well
as motivating divisional management to achieve corporate goals. Global
companies, while determining transfer prices for supplies to subsidiaries
and affiliates in foreign countries, take into account a number of factors
like taxes, duties and tariffs leviable in the countries concerned, their market
conditions, ability of the potential customers to pay for the company's
products, different profit transfer rules, conflict objectives of joint venture
partners and varying government regulations such as deposit requirements
on imports.
A transfer pricing situation involves three questions or decisons: