Transfer pricing for world-class manufacturing

Abstract The incorporation of strategic considerations into transfer pricing decisions has been largely overlooked. This paper proposes that the transferred good's position along the product life-cycle continuum, the significance of the process technology used to manufacture the product and the firm's diversification strategy for its divisions should be considered when setting transfer prices. A model that links together these three strategic issues with recommended transfer pricing methods is provided. The paper then proceeds to explain the linkages in the model and discusses the model's implications for practising managers.

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