Management Assignment Samples

Assignment Sample On Intra Firm Trade Flows

Question:- Based on the readings indicate how an intra-firm value web can be assessed for its costs and benefits.  How can a networked intra-firm system be accounted for in cost-benefit from the two or more parties involved.  Use a real-world example to drive home your points.

Answer:-

Introduction

Intra-firm trade relates to international movements of merchandises and amenities between maternal companies and their partners or among these affiliates, as contrasting to arm’s length trade amid dissimilar parties of inter-firm trade. Thus, intra-firm trade ascends only when firms capitalisein a foreign country(Choi, n.d.). On the other hand, offshoring therepositioning of actions overseas arrests not only intra-firm trade, but also arm’s length trade with self-governing contractors.

Due to the entry of the global value chains there has been an expansion of activities in the multinational enterprises which have indirectly increased the value of trade flows between the intrafirm trades. In spite of mounting attention from policymakers, few data are composed on trade transactions between linked parties. Accessible evidence proposes that intra-firm trade signifies a noteworthy portion of world trade but fluctuates extensively across nations and industries(Egger & Seidel, 2013). Trade statistics and firm-level data locate out that intra-firm trade and vertical incorporation occur chiefly among OECD countries and that firm conduct and dealings between purchasers and providers explain the patterns of intra-firm trade. The report examines the inferences of intra-firm trade for trade liberalisation, relocation estimating and the broadcast of macroeconomictremors(Haller, 2012). It finds that for tradepoliticians, the rise of intra-firm trade highlights the welfares of trade liberalisation when domestic firms have associates abroad and foreign firms are established in the national economy. Trade policy should endure neutral with admiration to firms sourcing approaches but trade agreements should progressively take into account vertical relationships between buyers and suppliers(Lian& Ma, 2011).

Maximum nations gather few statistics on intra-firm trade or none at all. Intra-firm trade figures unruffled through customs are accessible only for the United States where, in 2009, such trade accounted for 48% of US goods ingresses and about 30% of US goodssell abroad(Tang, 2003). Obtainable figures on the actions of multinational companies allow comparing the share of intra-firm trade in total manufacturing exports for nine OECD countries only but are often limited to the exports of foreign associates and do not include the exports of parent companies to their associates.

One more significant issue for policy makers that ascends in the context of intra-firm trade is transfer pricing, which refers to the estimating ofproperties, amenities or other properties in transactions between affiliated firms. As the pricing of intra-firm dealings happens off the market, MNEs may face problems in shaping the analogous market price but may also deliberately under- or over-price transactions in order to exploit their income(Tang & Madan, 2003). From a trade policyoutlook, the most critical question is then how transfer pricing distresses the dimension of trade. Transfer prices imitate the income of the vending and the acquiring firm and hence the direct income taxes they have to pay in the two individual tax jurisdictions.Besides, transfer pricing also moves the profits from indirect taxes such as tariffs and value-added tax (VAT). From an income taxperception, MNEs might have an enticement to change profits from high-tax to low-tax countries. Hence, a partner situated in a high-tax country might under-price exports and over-price imports in order to lower taxable income(Choi, n.d.).

Meanwhile the pricing policy of associated businesses might be dissimilar for income tax and for customsmotives, tax and customs consultants can have contrastingbenefits. Customs consultants are attentive in collecting more duties and are later in general captivated in finding under-estimations of prices(Egger & Seidel, 2013). Therefore National tax and customs authorities follow two diverse sets of international rules. Tax authorities base their directive concerning transfer pricing on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations,though imposts authorities are bound by the World Trade Organization (WTO) Customs Valuation Agreement. Though the events of tax and customs authorities are oversaw by these two unlike sets of rules, they follow the same rudimentarybelief, namely that the price of the transaction must not be affected by the association among the partiesconvoluted(Haller, 2012). Customs authorities monitor the WTO Customs Valuation Agreement when evaluating the prices of intra-firm trade transactions. To control the value of intra-firm transactions, customs authorities trust on charges of imports that are traded between distinct parties. To evaluate whether the transaction value issatisfactory, customs authorities use the conditions oftrademethod or the test valuestactic. Although the former tactic assesses whether the price is prejudiced by the association of the parties, the latter approach associates the transfer price to one of three types of test values(Lian& Ma, 2011). If customs authorities discover that the transaction value is notsatisfactory, they regulate the customs value by bank on the following five approaches listed in terms of pecking order

• The transactional value of identical goods.
• The value of transaction for similar goods.
• Method of deduction.
• Computational method.
• Method of fall back(Tang, 2003)

REFERENCES

Choi, A. The Role of Headquarters in Firm-specific Investment and Intra-firm Trade. SSRN Electronic Journal. doi:10.2139/ssrn.291533

Egger, P., & Seidel, T. (2013). Corporate taxes and intra-firm trade. European Economic Review, 63, 225-242. doi:10.1016/j.euroecorev.2013.07.007

Haller, S. (2012). Intra-firm trade, exporting, importing, and firm performance. Canadian Journal Of Economics/Revue CanadienneD'économique, 45(4), 1397-1430. doi:10.1111/j.1540-5982.2012.01736.x

Lian, L., & Ma, H. (2011). The Magnification Effects of Intra-firm Trade of Multinational Corporations. IJBA, 2(3). doi:10.5430/ijba.v2n3p94

Tang, L. (2003). THE RELATIVE EFFICIENCY OF OWNERSHIP STRUCTURES AND INTRA-FIRM TRADE. The International Trade Journal, 17(2), 177-203. doi:10.1080/08853900390200184

Tang, L., & Madan, V. (2003). THE RELATIVE EFFICIENCY OF OWNERSHIP STRUCTURES AND INTRA-FIRM TRADE. The International Trade Journal, 17(2), 177-203. doi:10.1080/08853900309527