4.

Benefiting the Enterprise to the

Detriment of a Subsidiary
* Subsidiary Detriment – situation in which a small loss
for a subsidiary results in a greater gain for the total IC.

1. Moving Production Factors

2. Which Subsidiary Gets the Order?
3. Multicountry Production
4. Which Subsidiary Books the Profit?
Transfer Pricing
 Pricing that is established for transactions
between members of the enterprise.

5. Subsidiary Frustration
 The trend for many ICs of shifting power away from
subsidiaries toward the parent has caused
predictable frustration to subsidiary management,
sometimes followed by resignations.
Joint Venture

 A corporate entity between an IC and local owners or a

corporate entity between two or more companies that are
foreign to the area where the joint venture is located, or
it may involve one company working on a project of
limited duration in cooperation with one or more other
companies.
• Loss of Freedom and Flexibility

• Control can be Had

 A management contract
 Control of the finances
 Control of the technology
 Putting people from the IC in important executive positions
Reporting

 Financial
– a surplus of funds in one subsidiary should perhaps be
retained there for investment or contingencies.
 Technological
– new technology should be reported.
 Market Opportunities
– the affiliates in various countries may spot new or
growing markets.
 Political and Economic