scholarly journals Transfer Pricing: Conceptual Thoughts on the Nature of the Multinational Firm

2006 ◽  
Vol 31 (2) ◽  
pp. 29-44 ◽  
Author(s):  
Markus Brem ◽  
Thomas Tucha
Keyword(s):  
Value Chain ◽  
Multinational Enterprises ◽  
Multinational Firms ◽  
Transaction Cost Economics ◽  
Transfer Pricing ◽  
Multinational Firm ◽  
Value Chains ◽  
Chain Model ◽  
Business World ◽  
Clear Cut

This paper deploys Transaction Cost Economics (TCE) to elaborate on the shortcomings of ‘mainstream‘ transfer pricing in multinational firms. Departing from the notion that multinationals increasingly (re-)organize their business along multinational value chains irrespective of jurisdictional borders, this paper discusses the nature of the multinational firm and the problem of choosing the right intra-group (transfer) price. The mainstream transfer pricing approach derived from the Arm�s Length Principle (ALP) is deemed inappropriate for globally operating multinational enterprises (MNEs). Referring to the value chain model, the paper suggests that ‘entrepreneurial coordination’ is the key performance feature to be used for valuing business activity and for allocating — for tax transfer pricing purposes — standard mark-ups and residual profits along the value chain. The main findings of this paper are: Neo-classical concepts on marginal pricing may not suffice to establish arm's lengh transfer pricing; the inadequacy between tax-world transfer pricing (getting income allocation right) and business-world transfer pricing (getting management incentives right) might find its explanation in such concepts. MNEs need to be understood as large organizations different from domestic large organizations by the fact that they operate in different jurisdictions and/or institutional environments. Operative business is coordinated along business lines in which value chain processes can e identified. De facto, business-world transfer pricing takes place along such value chains in which tangible and intangible assets are transferred and hence require appropriate pricing from both the tax-world and the business-world perspective. TCE is a worthy candidate for illustrating governance structures and transactional attributes of business between related parties of a multinational group; such features support arguments to establish arm's length transfer pricing. Regularly, a clear cut-off of functional allocation into tax jurisdictions is difficult to achieve because of the high degree of integration into the value chains of the multinational. TCE appears to better distinguish between so-called �routine� and ‘non-routine’ functions. Transactions of the MNE are rarely of an ‘either-or’ feature (either ‘market’ or ‘hierarchy’). Depending upon transactional attributes, the price of such transaction can be assessed by variables describing the institutional and economic context, the transaction-specific contract, the stage of the business process involved, the strategy chosen, and the function pattern (function, risk, assets) Comparable information is rarely found in databases which provide company information. The more non-routine functions and intangibles are involved, the less is the tested function (or business unit) comparable with companies from external databases. Under these data constraints on comparables, the arm�s length tests on transfer pricing will have to resort to internal information if the ALP is intended to remain viable. A next-generation transfer pricing approach may have to make use of patterns of governance to characterize and to value the functional contributions to the overall value chain.

scholarly journals Substitution across profit shifting methods and the impact on thin capitalization rules

2021 ◽  
Author(s):  
Gideon Goerdt ◽  
Wolfgang Eggert
Keyword(s):  
Multinational Firms ◽  
Transfer Pricing ◽  
Multinational Firm ◽  
Profit Shifting ◽  
Goods And Services ◽  
Internal Goods ◽  
Transfer Prices ◽  
Debt Shifting ◽  
The Impact ◽  
Thin Capitalization

AbstractThin capitalization rules limit firms’ ability to deduct internal interest payments from taxable income, thereby restricting debt shifting activities of multinational firms. Since multinational firms can limit their tax liability in several ways, regulation of debt shifting may have an impact on other profit shifting methods. We therefore provide a model in which a multinational firm can shift profits out of a host country by issuing internal debt from an entity located in a tax haven and by manipulating transfer prices on internal goods and services. The focus of this paper is the analysis of regulatory incentives, $$(i)$$ ( i ) if a multinational firm treats debt shifting and transfer pricing as substitutes or $$(ii)$$ ( i i ) if the methods are not directly connected. The results provide a new aspect for why hybrid thin capitalization rules are used. Our discussion in this paper explains why hybrid rules can result in improvements in welfare if multinational firms treat methods of profit shifting as substitutes.

Industrial proximity and vertical integration of multinational firms

2018 ◽  
Vol 22 (1) ◽  
pp. 50-67
Author(s):  
Haeyeon Yoon ◽  
Jung Hur
Keyword(s):  
Vertical Integration ◽  
Value Chain ◽  
Multinational Firms ◽  
Market Access ◽  
Multinational Firm ◽  
Firm Level ◽  
Data Set ◽  
Content Type ◽  
Parent Firm ◽  
Plant Allocation

Purpose With the rise of foreign direct investment and global value chain, firms organize their plant allocation across countries to take advantage of production cost reduction opportunities and market access. The purpose of this paper is to investigate the production-supply strategies of Korean firms over foreign and domestic affiliates, using industrial proximity between Korean parent firms and their affiliates. Design/methodology/approach In this paper first, using the Survey of Business Activities provided by Statistics Korea, the authors build a matching data set between a parent firm and each affiliate both in domestic and foreign countries. Second, the authors define their vertical relationship based on the input requirement coefficients of the Input-Output table (IO table). Furthermore, using the same IO table, the authors define the proximity for the pairs of the parent firm and the affiliates in domestic and foreign markets. Then, the authors test the relationship between the parent firm’s choice for foreign affiliate and their proximity index. Findings The main result shows that the stronger the industrial proximity between a final good producing firm and its input supplying affiliate is, the more likely the cross-border vertical integration is to be observed than the domestic vertical integration. Also, the authors find that the firms whose production structure accords the main result outperform and conduct more self-R&D and less R&D on trust than the other firms. Originality/value The finding is novel and original in a sense that the authors showed for the first time at firm-level microdata evidence that there is an optimal pattern of organizing supply chains within a multinational firm.

Assessing Gender Roles in Dagaa Fishery Value Chain among Fishing Communities on Lake Victoria, A Case Study of Lake Victoria Beaches In Siaya County, Kenya

2020 ◽  
Vol 4 (2) ◽  
pp. 13-32
Author(s):  
Albert Ogoma Odhone ◽  
Ishmail Mahiri ◽  
Francis Onsongo
Keyword(s):  
Gender Roles ◽  
Interest Rates ◽  
Value Chain ◽  
Quantitative Data ◽  
Lake Victoria ◽  
Sampling Technique ◽  
Fishing Communities ◽  
Value Chains ◽  
Chain Model ◽  
Cross Sectional

Fisheries in the East Africa region have suffered due to less emphasis given to some fishery specifically Dagaa (Rastrineobolaargentea), whose quantity is the highest of all the species in the Lake Victoria. Despite the importance of this resource in Kenya, there has been a concern of gender parity and inequality in terms of roles played by both gender in harvesting, processing, trading and marketing in the Dagaa fishery. This study analyzed gender roles in Dagaa Fishery Value Chain among fishing communities around Lake Victoria in Bondo Sub County, in Siaya County, Kenya. The study addressed the following objectives: Identified the various roles of men and women in Dagaa Fishery Value Chain, discussed factors influencing gender roles in Dagaa Fishery Value Chain, analyzed the barriers to women’s participation in certain Dagaa Fishery Value Chain and examined the strategies to overcome challenges in gender roles in Dagaa fishery value chain in Bondo Sub-County, Siaya County. The study adopted a cross-sectional research design. This study was guided by two models; gender analysis framework model that was developed by Sarah Longwe and supply chain model. Purposive sampling technique was used to select Bondo Sub-County and fishing community in Bondo Sub-County; random sampling technique was used to select five (5) fish landing sites/beaches where quantitative data were collected from 186 out of the targeted 188 primary respondents, from among the forty-four beaches of Lake Victoria in Bondo Sub-County. Quantitative data was analyzed using SPSS Version 25, and descriptive statistics such as frequencies and percentages were used in presenting analyzed data. The results were presented using tables and charts. The study findings revealed that majority of the boats and fishing gears were owned by men, motorized boats belonged to men while a higher percentage of females still had the paddled boats. While men dominated the fishing of Dagaa, women dominated processing and trading of Dagaa in the beaches. The study noted that men made higher returns than their female counterparts at all levels of Dagaa fishery value chain. The study concluded that there is a still wide disparity among gender roles in Dagaa fishery value chain. Most of the activities in the value chain are still dominated by men. This study recommends that women be encouraged to take part in Dagaa fishery value chains, empowerment of women to take part in transportation and distribution of Dagaa and application of various strategies such as joining SACCOs to access loans at low interest rates, formation of groups for ease of access to credit services and weakening patriarchy to mitigate factors affecting Gender roles in Dagaa fishery value chains.

The business responsibility matrix: a diagnostic tool to aid the design of better interventions for achieving the SDGs

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Noemi Sinkovics ◽  
Rudolf R. Sinkovics ◽  
Jason Archie-Acheampong
Keyword(s):  
Diagnostic Tool ◽  
Value Chain ◽  
Multinational Firms ◽  
Two Dimensions ◽  
Multinational Firm ◽  
Global Reporting Initiative ◽  
Un Global Compact ◽  
Content Type ◽  
The Matrix ◽  
Depth Dimension

Purpose This paper aims to propose an integrative framework that enables the mapping of firm activities along two dimensions of responsible business behavior: a width and a depth dimension. Width includes associative, peripheral, operational and embedded responsibility. In terms of depth, we identify delinquent, neutral, nascent, enhanced and advanced levels of responsibility. Design/methodology/approach The responsibility matrix is developed by drawing on the literature and the ambition to provide a more nuanced map of a firm’s activities and its contributions toward the sustainable development goals (SDGs). Findings The matrix enables the classification of firm activities into different functional categories based on how they relate to a firm’s business model. Further, the meaningfulness of each activity can be identified by determining its depth. Research limitations/implications Mapping all the relevant activities of a multinational firm onto the responsibility matrix enables managers and policymakers to identify areas where transformation is most needed. Further, multinational firms can use the matrix to map the activities of their value chain partners and design more effective standards and interventions. Practical implications The business responsibility matrix represents a diagnostic tool that enables the detailed mapping of firm capabilities and the identification of areas where further capacity building is necessary and where pockets of excellence exist. Social implications The responsibility matrix offers a benchmarking tool for progress that can be used in conjunction with existing guidelines and initiatives such as the United Nations (UN) Guiding Principles on Business and Human Rights, the UN Global Compact and the Global Reporting Initiative. Originality/value The responsibility matrix acknowledges that firms can engage with the SDGs through different types of activity (width dimension). Simultaneously, it recognizes that activities in the same category can have varying levels of effectiveness (depth dimension).

Technological entrepreneurship in India

2017 ◽  
Vol 9 (1) ◽  
pp. 65-84 ◽  
Author(s):  
Pamela Meil ◽  
Hal Salzman
Keyword(s):  
Value Chain ◽  
Multinational Enterprises ◽  
Service Providers ◽  
Knowledge Work ◽  
Business Environment ◽  
Innovative Technology ◽  
Value Chains ◽  
Individual Risk ◽  
Content Type ◽  
Development Trajectories

Purpose Is the rise of the Indian software industry simply another Asian state-dominated industrial growth story or is India distinctive, an economy where small technology entrepreneurs also find niches for development and can be drivers of innovation? Research has focused on the large integrated Indian and international service providers. This study examines the opportunity for growth among smaller innovative technology entrepreneurial firms. Two areas of inquiry are: What factors have been responsible for spurring growth in the Indian IT industry? What type of work is being carried out at Indian firms and is this profile changing? This paper aims to examine the emergence of technology entrepreneurs, particularly in terms of their links to multinational firms and their role and position in global value chains. The paper takes a multi-level approach to understanding development trajectories in the IT sector in India: a global value chain approach to the extent that company processes are seen in their larger networked context across organizations and an institutional approach in terms of state policies that influence the creation of infrastructure that, in turn, shapes organizational development trajectories. Additionally, it examines the role of the various actors within IT sector organizations – the workers, the managers and, in the case of the small companies in our sample, the owners – on the outcome of growth trajectories in the Indian IT sector. We find that the various levels of change and policy all contribute to the outcome in company trajectories: the dominance of multinational enterprises on the market, the entrepreneurial vision and survival strategies of returned technology expatriates, and the changing policies of the government in promoting indigenous business. Design/methodology/approach Qualitative research interviews; comparative case study; literature review; multi-tier analysis. Findings The technology entrepreneurial development in India appears to represent quite a distinctive path in terms of both firm development and broader economic development. It is focused on the IT sector, in which high skill “knowledge work” is carried out and which has been able to develop despite lack of basic infrastructure (roads and reliable electricity). Research limitations/implications After the opening up of the business environment to large Western multinational enterprises (MNEs), it was difficult for indigenous Indian entrepreneurs to compete in innovative product development markets. Developing such companies depended on individual risk taking, as no specific infrastructure existed for niche production. However, the knowledge base and innovation clusters did offer opportunities for obtaining contracts. The Indian entrepreneurs did have to make a lot of compromises about defining their business and the tasks they could undertake. More research is needed on the paths and development opportunities for these smaller Indian-owned firms. Practical implications Unique opportunities are emergent and defy easy policy prescriptions, other than precluding change that does not foreclose emergent possibilities (e.g. such as strong state controlled business development). Social implications Indian-owned innovative companies, although having difficulties competing with large Indian and Western MNEs, do put pressure on these MNEs to move work up the value chain, thereby providing more interesting and challenging opportunities for Indian knowledge workers. Originality/value This paper provides a unique company-level perspective about entrepreneurialism in the Indian software sector from the perspective of different actors in the process. It then links this company-level perspective to a larger context both in terms of trajectories of development at the macro level, as well as the role that the company’s place in multinational value chains has in its development perspectives. It gives a special insight into the motivations and obstacles facing entrepreneurs in India’s dynamic software sector.

scholarly journals Are multinationals and governments from emerging economies configuring global value chains in new ways?

2019 ◽  
Vol 15 (1) ◽  
pp. 111-130 ◽  
Author(s):  
Claes Alvstam ◽  
Inge Ivarsson ◽  
Bent Petersen
Keyword(s):  
Emerging Economies ◽  
Value Chain ◽  
Multinational Firms ◽  
Global Value Chains ◽  
Value Chains ◽  
Special Focus ◽  
Content Type ◽  
Political Actors ◽  
Advantages And Disadvantages ◽  
Cost Efficiencies

Purpose The hallmark of today’s global value chains (GVCs), still dominated by multinationals from advanced economies, is a sophisticated international division of labor based on scale economies and prevailing factor endowment differences between countries. However, GVCs led by multinationals from large emerging economies may be configured on the basis of considerations that supplement factor cost efficiencies, namely, those of societal objectives as formulated by political actors in the home country. In this context, the purpose of this paper is to examine the implications of political and socio-economic factors on GVC configuration of multinational firms. Design/methodology/approach This paper provides an in-depth case study of a leading Chinese car manufacturer, Zhejiang Geely Holding Group (ZGH) and its value-chain configuration, with a special focus on the acquisition of Volvo Car Corporation. Findings The authors show how ZGH’s configuration of its GVC, including that of acquired Volvo Car Corporation, takes place in symbiosis with political actors. The advantages and disadvantages of this symbiosis are highlighted. Research limitations/implications The study focuses on GVC configuration of one company, ZGH, in one industry, the automotive industry, in one emerging economy. The external validity of the study may therefore be limited. Furthermore, the focus is on the geographical/locational configuration of GVCs and ignores the ownership aspects. Originality/value The paper provides novel empirical evidence to better understand GVC configuration of multinational firms from emerging economies.

scholarly journals Global value chains, rising power firms and economic and social upgrading

2015 ◽  
Vol 11 (3/4) ◽  
pp. 319-339 ◽  
Author(s):  
Joonkoo Lee ◽  
Gary Gereffi
Keyword(s):  
Value Chain ◽  
Multinational Enterprises ◽  
Production Systems ◽  
Value Chains ◽  
Content Type ◽  
Recent Developments ◽  
Alternative Markets ◽  
Economic Upgrading ◽  
Rising Power ◽  
Social Upgrading

Purpose – The purpose of this paper is to introduce the global value chain (GVC) approach to understand the relationship between multinational enterprises (MNEs) and the changing patterns of global trade, investment and production, and its impact on economic and social upgrading. It aims to illuminate how GVCs can advance our understanding about MNEs and rising power (RP) firms and their impact on economic and social upgrading in fragmented and dispersed global production systems. Design/methodology/approach – The paper reviews the GVC literature focusing on two conceptual elements of the GVC approach, governance and upgrading, and highlights three key recent developments in GVCs: concentration, regionalization and synergistic governance. Findings – The paper underscores the complicated role of GVCs in shaping economic and social upgrading for emerging economies, RP firms and developing country firms in general. Rising geographic and organizational concentration in GVCs leads to the uneven distribution of upgrading opportunities in favor of RP firms, and yet economic upgrading may be elusive even for the most established suppliers because of power asymmetry with global buyers. Shifting end markets and the regionalization of value chains can benefit RP firms by presenting alternative markets for upgrading. Yet, without further upgrading, such benefits may be achieved at the expense of social downgrading. Finally, the ineffectiveness of private standards to achieve social upgrading has led to calls for synergistic governance through the cooperation of private, public and social actors, both global and local. Originality/value – The paper illuminates how the GVC approach and its key concepts can contribute to the critical international business and RP firms literature by examining the latest dynamics in GVCs and their impacts on economic and social development in developing countries.

scholarly journals Governance of global value chains after the Covid-19 pandemic: A new wave of regionalization?

2021 ◽  
pp. 234094442110207
Author(s):  
José Pla-Barber ◽  
Cristina Villar ◽  
Rajneesh Narula
Keyword(s):  
Value Chain ◽  
Multinational Enterprises ◽  
Global Value Chains ◽  
Jel Classification ◽  
Global Strategy ◽  
Value Chains ◽  
New Wave ◽  
Governance Systems ◽  
Trade And Investment

The disruption of the trade and investment activities of multinational enterprises as a consequence of the Covid-19 pandemic has reinvigorated the debate on the configuration of global value chains (GVCs) as well as the risks and challenges associated with offshoring. This article depicts how the pandemic might affect GVC configuration by driving a trend toward a more regional footprint in industries in which resilience and reliability are critical. Such a shift would create new opportunities for reshoring, and affect both the types of upgrading trajectories and the governance systems in value chains. The article also draws from the intersection of the global-strategy and value-chain fields to propose potential topics and avenues for further research related to these trends. JEL Classification: M16, M21, M14

scholarly journals MNE’s THEORY AND GLOBAL VALUE CHAINS

2019 ◽  
Author(s):  
O. Rogach
Keyword(s):  
Value Chain ◽  
Multinational Enterprises ◽  
Multinational Enterprise ◽  
Global Value Chains ◽  
Value Chains ◽  
Special Focus ◽  
International Production ◽  
Theoretical Approaches ◽  
Trade In Tasks ◽  
The One

This article analyzes a multinational enterprise (MNE) theories from the first pioneering papers of S. Hymer and the modern approaches to studying these institutions. A special focus is placed on the one of the research schools that studied the fragmentation of international production and the global value chain (GVCs) creation. In this context, various theoretical approaches to the study of modern global MNE networks are considered, the theory of trade in tasks and the macroeconomic approach to the evaluation of fragmentation effects. The paper argues that the concepts of MNEs international production and GVCs are interlinked, although not equal. Sometimes they are used as synonyms, but they characterize the contemporary process of internationalization from different perspectives. It shows the various types of organization of global value chains, such as the horizontal and vertical integration of production. Within such networking systems of multinational enterprises there are complex hierarchical relationships between individual participants and links. Technological slicing of production into separate fragments requires MNE to use not only own equity- controlled affiliates, but also the offshore production of partner firms.

scholarly journals INTERNATIONAL PRODUCTION OF MULTINATIONAL ENTERPRISES

2018 ◽  
pp. 70-81
Author(s):  
O. Rogach
Keyword(s):  
Multinational Enterprises ◽  
Multinational Firms ◽  
Global Financial Crisis ◽  
Global Value Chains ◽  
Value Chains ◽  
Foreign Direct Investments ◽  
International Firms ◽  
International Production ◽  
The World ◽  
The Global Financial Crisis

The article analyzes the essence and scale of multinational enterprises (MNEs) international production. The questions of methodology and terminology of MNEs definition, evolution of views as well as the main approaches on this issue in the world and domestic economic literature are considered. It is argued that the concept of multinationality is a key attribute of modern international firms, the main feature of creating value process in their global chains and one of the most important competitive advantages of these firms over national companies. The development of the international production fragmentation theory and the terminology of global value chains is shown, as well as theoretical macroeconomic assessments of fragmentation and global value chains on the participating countries. Also paper shows the role of multinational firms in the world economy, modern tendencies of international production, dynamics of new annual foreign direct investments inflow and other indicators of the international production of multinational enterprises. It is argued that the reasons for a different trends of such indicators dynamics are the peculiarities of MNEs foreign affiliates financial mechanism after the global financial crisis and the development of network outsourcing mechanisms for the externalization of international production.

Sign in / Sign up

Export Citation Format

Share Document