TRANSFER PRICING AND TAXATION
A small operation managed by a few individuals was the typical beginning of a large corporation with a hundred operating affiliates dispersed around the world. Decision making was highly centralized and lines of communication were short. As the company grew, the founding management team found it more difficult to keep matters under control. This problem was greatly exacerbated when operations within the company became physically separated. Centers of activity in different locations called for a different style of management. Funneling of all decisions from diverse locations through a small group of individuals, who no longer possess the necessary intimate awareness of the circumstances surrounding each decision, is a surefire prescription for stifling growth.
Growth is the name of the game for modern corporations. Growth entails individual operating affiliates taking appropriate action to enhance productivity, market share, and the scope of a company's product line. It has been found that operating affiliates physically separated from the parent organization can best achieve these objectives under a decentralized style of management. Responsibility now falls on the shoulders of the manager of an operating affiliate to make the necessary decisions that will lead to improved financial results, the universal measure of performance. The parent organization takes on a new role as coordinator and monitor of activities now that responsibility for operations has been transferred to the operating units.
Far from playing a passive role, the parent organization focuses its attention on optimizing the performance of its semiautonomous operating affiliates. To do this, the parent organization must establish, and articulate, a set of strategic goals and allocate limited corporate resources to the various operating affiliates to best achieve these goals. It must ensure that the short-term action plans of the operating affiliates are in accord with its long-term plans. Top management