Discuss the theory of Transfer Pricing in relation to competitiveness, Essay

Discuss the theory of Transfer Pricing in relation to competitiveness, management, minimisation, avoidance and internal concerns. Use the theory as basis for a - Essay Example Optimal transfer pricing techniques are adopted by MNCs to maximize profits within the organization through tax liability avoidance (Keegan and Green 2005). The strategic imperatives behind transfer pricing efforts include a desire to have a competitive edge over rivals, minimize costs or maximize revenue, maximize strategic management-related gains such as x-efficiency and above all establishing market leader status. Any MNC would introduce its product into a foreign market by using transfer pricing as a very attractive pricing strategy within the organization itself. The first and foremost strategic initiative is to arrive at an overall estimate of the organization’s cost structure and its composition such as the amount of fixed cost, variable cost, average cost and marginal cost. Then the firm would look at its revenue flow estimates such as the total revenue, average revenue and marginal revenue. An MNC would adopt optimal transfer pricing strategy and its variants to achieve organizational goals and corporate objectives as an MNC across the world (Elliot and Emmanuel 2000). This paper would examine in detail the Japanese market for Xbox 360 with the main focus on strategic transfer pricing techniques that would be adopted by Microsoft in Japan to achieve its main organizational aims. Thus, its remit would include such international marketing concepts as strategic market/customer/product/competitor orientation, and tactics like the principle of maximum product differentiation. It is not unusual for MNCs to apply transfer pricing in a variety of international business contexts. Video game console market in the world has not only been noticed to possess some peculiar characteristics but also it has intrinsically developed unique trend of extrapolation in conformance with cross self-entertainment specificities across a series