Silos

I work for a fairly large Anglo-Dutch multi-national. In our office building, our co-tenant is another fairly large Anglo-Dutch multi-national. Multi-nationals work in mysterious, yet rather similar ways. Or, so I found out at the supermarket queue.

Behold the concept of a transfer price! As integrated multi-nationals have different modules of their supply chains residing in different countries or tax jurisdictions, they use a concept of transfer pricing. This ensures that different legal entities that belong to the same global corporation treat each other at arm’s length, charge each other competitive market prices, and do not exploit any favorable tax regimes along the supply chain. However, incentive-driven individuals within the same corporation (at least, within mine) spend hours, days and weeks haggling over what price to charge each other, so as to lock in attractive bottom-lines for their own business units, and harvest correspondingly handy performance bonuses.

Right now, I am stuck in the middle of one such intra-company deadlock, where we seem to have completely forgotten that our main customer for the deal is an external one. Curiously, it would seem that I am not the only one with this headache today. The lady ahead of me, in the queue downstairs, was poring over a densely populated printout titled “Transfer Pricing Schedule”, while paying for her milk and bananas. And, the logo in the corner of aforementioned document belonged to aforementioned fellow Anglo-Dutch multi-national.

Alas, I did not get to see how much they were charging each other for my Dove soap bar.