Response to the following problem:
P plc is a multinational conglomerate company with manufacturing divisions, trading in numerous countries across various continents. Trade takes place between a number of the divisions in different countries, with partly-completed products being transferred between them.
Where a transfer takes place between divisions trading in different countries, it is the policy of the board of P plc to determine centrally the appropriate transfer price without reference to the divisional managers concerned. The board of P plc justifies this policy to divisional managers on the grounds that its objective is to maximize the conglomerate's post-tax profits and that the global position can be monitored effectively only from the head office.
(a) From your knowledge of international/global business strategies, identify the business strategy pursued by P plc with justified reasons.
(b) Explain three (3) possible reasons behind P plc's policy of centrally determining transfer prices for goods traded between divisions operating in different countries.
(c) State any four (4) disadvantages that this policy may have on the operations of P plc.
(d) It has now been observed that P plc's core competence is local responsiveness. Is the company pursuing an optimal strategy? Why or why not?