Transfer pricing case - Coursework Example

The company’s management decided to expand its product line and consequently many new and innovative products were developed. As a result a broad array of cell phone products developed among which the Energy Saving System or ESS was most significant. The company’s growth enabled it to reach the broader markets including international markets and diversification. In 2003, the company’s management decided to diversify internationally into Asia-Pacific markets which were expected to experience the highest growth retain cell phone usage in near future.

The management team at Prime Co. decided to discuss the possibility of expanding into international markets. They decided to enter the Asian-Pacific market as it was expected to experience the highest growth in cell phone usage in near future. Some of the strategies that were being considered by the Prime Co’s management team include exporting, licensing, contract manufacturing, strategic alliances, or starting a wholly owned subsidiary. Exports mean to transfer goods and services outside domestic borders.

Exports can be favorable when the domestic market’s demand has stabilized and there is huge demand in the developing countries for the target products. The benefits of exports can be reduced by the foreign government by introducing trade and tariffs which act as barrier for importing foreign goods in developing countries. The foreign governments generally adapt such policy to protect the domestic markets from foreign competition. In these kinds of situations the company does not have direct control.

Licensing is the granting of permission by licensor to the licensee as an authorization for carrying out activities by the licensee and also use the licensed material of licensor. The biggest advantage of licensing is that it involves less cost of investment on R&D with limited financial risk. So, if the product fails in foreign country