Case Overview

According to Xerox controller, Sachs, Xerox currently is experiencing shock and frustration
caused by multinational transfer prices and trade exchange, which is a sensitive issue for many
global companies. Xerox policy regarding the transfer price is the price of purely domestic
transfers using the full cost method of standard, while for overseas use methods arms length
(fair market price). Transfers pricing systems applied by Xerox is quite flexible and are designed
to deal with the market so that the company can quickly response market pressures and the
challenges of global competition.
Transfer price may have a direct influence on the planning of the company's performance.
External factors such as changes in the rate of duty or state regulations (eg, quotas) may be
directly adverse effect on performance. Sometimes there is an event that is beyond the limit of
the company's control such as deflation or inflation is unanticipated local that can alter the
performance of the company but are not included in the calculation. But the pressure is
somewhat reduced by the use of more operational statistics to evaluate the performance of the
unit and its managers.
Transfer price for the domestic market is not as complicated as the transfer price for abroad. All
still under the same legal entity in which the effect of the transfer price will be eliminated when
it is consolidate. Things to consider is the influence the transfer price to achieve a target
performance unit. As for the price of the transfer between units abroad a little more complicated
because of the wider problem. Problems happen due to the different legal entities, different
regulatory authorities (taxes, duties, etc.), and the difference in the exchange rate. In this
situation Xerox uses market-based transfer price, which is a method in accordance with U.S. tax
laws and rules of the OECD official. Provide market-based transfer price margin for units sold
and units that bought. This allows the unit to buy to compete in the local market. In this case
Xerox understands that business success is a source of satisfying external customers, so they
must serve their internal customers well.
As the price of domestic transfers, multinational transfer prices negotiated if there is a change in
the situation of competition or changes in economic variables such as exchange rate, taxes,
duties, and state policies. Exchange rate can lead to a big shake-up in the price of economic
transfer and is essential in the consolidation of foreign operations. Xerox Management used the
exchange rate to measure the local U.S. and foreign unit performance. Consolidation currency
used is the U.S. Dollar and reports in U.S. Dollars basic idea of the company. Normal changes in
foreign currency exchange rates (3-5%) are the responsibility of foreign managers. If the
exchange rate moves vis--vis the dollar value of more than 3-5% then it will be a problem for
the company. Meanwhile, if the exchange rate moves in a favorable direction for operations
abroad, the company cut its financial results for the additional purpose of measuring the
performance of the unit (such as a share of profits from investing which caused by the currency).