This document discusses Masha Shunko's thesis on global supply chain planning and the impact of international taxation and transfer pricing. It outlines her objectives to study how tax considerations impact transfer pricing and operational decisions for global supply chains facing uncertainty. It presents her three proposed essays which analyze: 1) the role of transfer prices with random demand, 2) transfer pricing and offshoring with cost uncertainty, and 3) transfer pricing and sourcing strategies with cost and exchange rate uncertainty. The document provides context on transfer pricing concepts and literature relevant to her research.

1. Global Supply Chain Planning: Impact of International Taxation and Transfer Pricing Masha Shunko Committee members: Alan Scheller-Wolf Srinagesh Gavirneni Laurens Debo Lin Nan

2. Agenda Motivation Transfer Pricing 101 Thesis objectives 3 Essays Proposed work 2

3. Motivation 3 e

4. Motivation 4 e

5. Motivation 5 e

6. Motivation 6 e

7. Motivation 7

8. Transfer pricing 101 8 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10

9. Transfer pricing 101 9 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10

10. Transfer pricing 101 10 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10

11. Transfer pricing 101 11 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0

12. Transfer pricing 101 12 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $7,000

13. Transfer pricing 101 13 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 ? $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $7,000

14. Transfer pricing 101 14 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 $0 $10 $20 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $10,000 $7,000 $10,000

15. Transfer pricing Legal background Flexibility of Transfer Pricing Rules (§1.482 IRC) Cost based methods Retail price methods Profit split method Negotiated method Alternate methods “Best method” 15

16. Transfer pricing Legal background Repatriation of profit Residence based taxation, deferral of taxation 16

17. Transfer pricing Legal background Repatriation of profit Residence based taxation, deferral of taxation Unrepatriated profits: 17

18. Transfer pricing Legal background Repatriation of profit Residence based taxation, deferral of taxation Unrepatriated profits: 18 * Wall Street Journal, April 22nd, 2009 “Titans Vow Overseas – Tax Fight”

19. Transfer pricing Legal background Repatriation of profit Residence based taxation, deferral of taxation Unrepatriated profits: General Electric** average tax rate reduction over 2008-2010 is 30.2 19 * Wall Street Journal, April 22nd, 2009 “Titans Vow Overseas – Tax Fight”

20. Transfer pricing Incentive issues Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 Selling division, USA; Tax rate = 30%, Sales price = $20, Demand = 1000 $7,000 $0 $10 $20 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $10,000 $7,000 $10,000 20

22. Tax: income shifting;$7,000 $0 $10 $20 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $10,000 $7,000 $10,000 21

24. Tax: income shifting;

25. Incentive: divisional performance.$7,000 $0 $10 $20 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 Manufacturing division, Estonia; Tax rate = 0%, Cost = $10 $0 $10,000 $7,000 $10,000 22

26. Transfer priceIncentive = Tax ? Halperin Chechowitz (1980) 23

27. Literature review Accounting Transfer pricing models: Hirshleifer (1956), Horst (1972), Copithorne (1971), Hoffman (2001), Baldenius and Reichelstein (2006) Offshoring: Altshuler et al. (2001), Desai and Hines (2003), Clausing (2005) Operations Management Global sourcing: Kogut and Kulatilaka (1994), Kouvelis (1999) Global supply chain logistics: Vidal and Goetschalkcx (2001), Nieckels (1976), Cohen et al. (1989) Transfer pricing: Huh and Park (2008) 24

28. Thesis research objective Study the impact of tax considerations on the transfer pricing and operational decisions of global supply chains facing different sources of uncertainty 25

29. Thesis research objective Study the impact of tax considerations on the transfer pricing and operational decisions of global supply chains facing different sources of uncertainty 26

30. 27 Essay 1: Role of Transfer Prices in Global Supply Chains with Random Demands Masha Shunko Joint work with: Srinagesh Gavirneni, The Johnson School, Cornell University Published at: Journal of Industrial and Management Optimization, Volume 3, Number 1, February 2007, Pages 99 - 117

31. Essay 1: Research objective What is the impact of optimizing transfer prices on the global supply chain performance of a price-setting firm facing random demand? 28

32. Essay 1: Supply Chain Model 29 Headquarters Local selling division t Foreign producing division c, ¿ Decision variables Random variables Parameters

33. Essay 1: Supply Chain Model 30 Headquarters Local selling division t Foreign producing division c, ¿ P D(P, ²) Decision variables Random variables Parameters

34. Essay 1: Supply Chain Model 31 Headquarters Local selling division t Foreign producing division c, ¿ P D(P, ²) D(P)=a - b P + ² Decision variables Random variables Parameters

35. Essay 1: Supply Chain Model 32 Headquarters Local selling division t Foreign producing division c, ¿ Q at T P D(P, ²) D(P)=a - b P + ² Decision variables Random variables Parameters

36. Essay 1: Supply Chain Model 33 Headquarters Local selling division t, cO, cU Foreign producing division c, ¿ Q at T P D(P, ²) Decision variables Random variables Parameters

37. Essay 1: Supply Chain Model 34 Headquarters Local selling division t Foreign producing division c, ¿ Q at T P D(P, ²) Decision variables Random variables Parameters

38. Essay 1: Supply Chain Model 35 Headquarters Local selling division t Foreign producing division c, ¿ Q at T P D(P, ²) Decision variables Random variables Parameters

39. Essay 1: Timeline 36 Stage 1: HQ sets the transfer price T Stage 2:Selling division sets selling price P and ordering quantity Q Decision variables Random variables Parameters

40. Essay 1: Timeline 37 Stage 1: HQ sets the transfer price T Stage 2:Selling division sets selling price P and ordering quantity Q Decision variables Random variables Parameters

41. Essay 1: Stochastic vs. Deterministic 38

42. Essay 1: Stochastic vs. Deterministic Stochastic 39

43. Essay 1: Stochastic vs. Deterministic Stochastic Deterministic 40

44. Essay 1: Stochastic vs. Deterministic Stochastic Optimal Profit: Deterministic Optimal Profit 41

45. Essay 1: Stochastic vs. Deterministic Stochastic Optimal Profit: Profit Improvement: Deterministic Optimal Profit Profit Improvement: 42

46. Essay 1: Stochastic vs. Deterministic Stochastic Optimal Profit: Profit Improvement: Deterministic Optimal Profit Profit Improvement: 43

47. Essay 1: Why ? 44

48. Essay 1: Why ? Selling price effect: 45

49. Essay 1: Why ? Selling price effect: 46

50. Essay 1: Why ? Selling price effect: 47

51. Essay 1: Why ? Selling price effect: 48

52. Essay 1: Conclusions Supply chains facing random demand achieve more benefit from optimizing transfer pricing The effects is highest for supply chains with: Low customer base High price elasticity High demand variability 49

53. 50 Essay 2: Transfer Pricing and Offshoring in Global Supply Chains with Cost Uncertainty Masha Shunko Joint work with: Laurens Debo, Booth School of Business, University of Chicago Srinagesh Gavirneni, The Johnson School, Cornell University Award: POMS Best Student Paper Award, May 2009

54. Essay 2: Research objectives What are the optimal pricing, sourcing, and transfer pricing strategies of global firms that face different tax rates and uncertain production costs at various business locations? How does organizational structure affect the sourcing and transfer pricing strategies of the global firm? 51

55. Essay 2: Global Supply Chain 52 Headquarters Local selling division t Foreign producing division c, ¿ P D(P)=a–bP Decision variables Random variables Parameters

56. Essay 2: Global Supply Chain 53 Headquarters Local selling division t Foreign producing division c, ¿ P D(P)=a–bP External supplier cE Decision variables Random variables Parameters

57. Essay 2: Global Supply Chain 54 Headquarters Local selling division t Foreign producing division c, ¿ Offshore: D(P) (1-¸) P D(P)=a–bP Outsource: D(P) ¸ External supplier cE Decision variables Random variables Parameters

58. Essay 2: Global Supply Chain 55 Headquarters Local selling division t Foreign producing division c, ¿ Offshore: D(P) (1-¸) P D(P)=a–bP Outsource: D(P) ¸ External supplier cE Decision variables Random variables Parameters

59. Essay 2: Global Supply Chain 56 Headquarters Information asymmetry Local selling division t Foreign producing division c, ¿ Offshore: D(P) (1-¸) P D(P)=a–bP Outsource: D(P) ¸ External supplier cE Decision variables Random variables Parameters

60. Essay 2: Global Supply Chain 57 Headquarters Information asymmetry Local selling division t Foreign producing division c, ¿ Offshore: D(P) (1-¸) P D(P)=a–bP Two point distribution: Outsource: D(P) ¸ External supplier cE Decision variables Random variables Parameters

61. Essay 2: Organizational structures 58

62. Essay 2: Organizational structures 59

63. Essay 2: Modeling details Cost for the local division = Revenue for the foreign division Consolidated profit Comply with legal rules 60

66. Essay 2: Centralized ModelTradeoff Curve Local tax rate C: No offshoring Foreign cost B: Full offshoring A: Full offshoring Avg external cost Foreign tax rate Parameters:» =1, b=0.1, t=0.35, cE =0.5, and ® = 0.5 63

67. Essay 2: Decentralized pricing 64

69. Essay 2: Decentralized pricingPartial offshoring solution But there are legal bounds on T… Profit Offshoring T(¸)<® P(T(¸),¸) T(¸)=®P(T(¸),¸) Partial offshoring solution Parameters: ¹=0.4; »=1; b=0.4; t=0.35; ¿=0.2; c = 0.41; ®=1; CV=1; 66

70. Essay 2: What is the best organizational structure? Low tax differential, high coefficient of variation Fixed parameters: Foreign tax rate = 35% Local tax rate >= 30% CV=1 67 67

71. Essay 2: Conclusions Tradeoff curve Tax benefits lead to More full offshoring for centralized supply chains Partial offshoring for decentralized supply chains Optimal supply chain structure depends on the expected cost advantage 68

72. 69 Essay 3: Transfer Pricing and Sourcing Strategies in Global Supply Chains Facing Cost and Exchange Rate Uncertainty Masha Shunko Joint work with: Laurens Debo, Booth School of Business, University of Chicago Srinagesh Gavirneni, The Johnson School, Cornell University

73. Essay 3: Research objectives How does the foreign tax advantage impact the global sourcing decision? 70

74. Essay 3: Research objectives How does the foreign tax advantage impact the global sourcing decision? What strategies can supply chains use to facilitate global sourcing decisions under cost and exchange rate uncertainty? 71

75. Essay 3: Research objectives How does the foreign tax advantage impact the global sourcing decision? What strategies can supply chains use to facilitate global sourcing decisions under cost and exchange rate uncertainty? Decentralization strategy Flexibility strategy 72

76. Essay 3: Global Supply Chain 73 Headquarters Local selling division p, t Foreign producing division c e, ¿ Decision variables Random variables Parameters

77. Essay 3: Global Supply Chain 74 Headquarters Local selling division p, t Foreign producing division c e, ¿ External supplier θ Decision variables Random variables Parameters

78. Essay 3: Global Supply Chain 75 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Outsource External supplier θ Decision variables Random variables Parameters

79. Essay 3: Global Supply Chain 76 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Two point distributions: Outsource External supplier θ Decision variables Random variables Parameters

80. Essay 3: Global Supply Chain 77 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Two point distributions: Outsource External supplier θ Decision variables Random variables Parameters

81. Essay 3: Global Supply Chain 78 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer atT Outsource External supplier θ Decision variables Random variables Parameters

82. Essay 3: Global Supply Chain 79 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

83. Essay 3: Global Supply Chain 80 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

84. Essay 3: Global Supply Chain 81 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

85. Essay 3: Decentralized Supply ChainTimeline 82 Stage 1: HQ sets the transfer price (TF) and offers it to the LD Stage 2: LD makes the sourcing decision θ e, θ LD HQ Decision variables Random variables Parameters

86. Essay 3: Decentralized Supply ChainModel 83 Stage 1: HQ sets the transfer price (TF) and offers it to the LD Stage 2: LD makes the sourcing decision θ e, θ LD HQ Stage 1: Decision variables Random variables Parameters

87. Essay 3: Decentralized Supply ChainModel 84 Stage 1: HQ sets the transfer price (TF) and offers it to the LD Stage 2: LD makes the sourcing decision θ e, θ LD HQ Stage 1: Stage 2: Decision variables Random variables Parameters

88. Essay 3: Decentralized Supply ChainModel 85 Stage 1: HQ sets the transfer price (TF) and offers it to the LD Stage 2: LD makes the sourcing decision θ e, θ LD HQ Incentive constraints Stage 1: Stage 2: Decision variables Random variables Parameters

89. Essay 3: Decentralized Supply ChainSolution Outsource (offshore) when cost is low (high) Transfer price: 86

90. Essay 3: Decentralized Supply ChainSolution Outsource (offshore) when cost is low (high) Transfer price: 87 HQ profit Expected outsourcing cost

91. Essay 3: Decentralized Supply ChainSolution Outsource (offshore) when cost is low (high) Transfer price: 88 Relaxing incentive constraints… HQ profit With incentive constraints… Expected outsourcing cost

92. Essay 3: Decentralized Supply ChainSolution Outsource (offshore) when cost is low (high) Transfer price: Look at the brown line… 89 Relaxing incentive constraints… HQ profit With incentive constraints… Expected outsourcing cost

93. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: 90 HQ profit Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1

94. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: 91 Outsourcing is always better HQ profit Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1

95. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: 92 Outsourcing is always better Offshoring is always better HQ profit Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1

96. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: 93 Sourcing strategy depends on the realization HQ profit Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1

97. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 94 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

98. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 95 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

99. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 96 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

100. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 97 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

101. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 98 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

102. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 99 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

103. Essay 3: Decentralized Supply ChainImpact on Profit HQ profit without tax advantage: HQ profit with tax advantage: 100 HQ profit HQ profit Expected outsourcing cost Expected outsourcing cost Parameters: ¿= 0.2, t = 0.2 ® = 1, p = 1.5, Á = 0.5, ¾µ = 0.1, c = 1 Parameters: ¿= 0,t = 0.2, ® = 1, p = 1.5, Á= 0:5, ¾µ= 0.1, c=1

104. Essay 3: Decentralized Supply ChainBut… can we do better? Outsource (offshore) when cost is low (high) Transfer price: 101 Relaxing incentive constraints… HQ profit With incentive constraints… Expected outsourcing cost

105. Essay 3: Decentralized Flex-GSCTimeline 102 Stage 1: HQ makes flexibility investment (x) and sets contract with LD (TO,TF) Stage 2: LD chooses a transfer price from the contract and makes sourcing decision for non-flexible proportion (1-x) Stage 3: HQ makes sourcing decision for the flexible proportion x θ e, θ LD HQ Decision variables Random variables Parameters

106. Essay 3: Decentralized Flex-GSCLocal profit 103 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

107. Essay 3: Decentralized Flex-GSCForeign profit 104 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

108. Essay 3: Decentralized Flex-GSCHQ after-tax profit 105 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

109. Essay 3: Decentralized Flex-GSCOptimization model 106 Stage 1: HQ makes flexibility investment (x) and sets contract with LD (TO,TF) Stage 2: LD chooses a transfer price from the contract and makes sourcing decision for non-flexible proportion (1-x) Stage 3: HQ makes sourcing decision for the flexible proportion x θ e, θ LD HQ Stage 1:

110. Essay 3: Decentralized Flex-GSCOptimization model Stage 1: HQ makes flexibility investment (x) and sets contract with LD (TO,TF) Stage 2: LD chooses a transfer price from the contract and makes sourcing decision for non-flexible proportion (1-x) Stage 3: HQ makes sourcing decision for the flexible proportion x θ e, θ LD HQ Stage 1: Stage 2: 107

111. Essay 3: Decentralized Flex-GSCOptimization model Stage 1: HQ makes flexibility investment (x) and sets contract with LD (TO,TF) Stage 2: LD chooses a transfer price from the contract and makes sourcing decision for non-flexible proportion (1-x) Stage 3: HQ makes sourcing decision for the flexible proportion x θ e, θ LD HQ Stage 1: Stage 2: Stage 3: 108

112. Essay 3: Decentralized Flex-GSCSolution Outsource (offshore) when cost is low (high) Transfer price: 109

113. Essay 3: Decentralized Flex-GSCSolution Outsource (offshore) when cost is low (high) Transfer price: Relaxing incentive constraints… HQ profit With incentive constraints… Expected outsourcing cost 110

114. Essay 3: Decentralized Flex-GSCSolution Outsource (offshore) when cost is low (high) Transfer price: Relaxing incentive constraints… Adding flexibility HQ profit With incentive constraints… Expected outsourcing cost 111

116. Transfer price:Essay 3: Decentralized Flex-GSCBut… flexibility is not free Relaxing incentive constraints… Adding flexibility HQ profit With incentive constraints… Expected outsourcing cost 112

118. Transfer price:

119. As cost of flexibility increases, profit decreasesEssay 3: Decentralized Flex-GSCBut… flexibility is not free Relaxing incentive constraints… Adding flexibility HQ profit With incentive constraints… Expected outsourcing cost 113

121. Transfer price:

122. As cost of flexibility increases, profit decreases

123. How much flexibility do we need?Essay 3: Decentralized Flex-GSCBut… flexibility is not free Relaxing incentive constraints… Adding flexibility HQ profit With incentive constraints… Expected outsourcing cost 114

131. Essay 3: Decentralized Flex-GSC vs.Centralized GSC 122

132. No tax advantage: A: Centralized GSC > Decentralized Flex-GSC Essay 3: Decentralized Flex-GSC vs.Centralized GSC C Outsourcing cost variability A Expected foreign cost Parameters: ¿ = 0:1, t=0.1, ®= 0.8, p = 2, Á = 0:5, » =0.5, ¹µ = 1, ¾e= 0:4 123

133. No tax advantage: A: Centralized GSC > Decentralized Flex-GSC C: Decentralized Flex-GSC > Centralized GSC Essay 3: Decentralized Flex-GSC vs.Centralized GSC C Outsourcing cost variability A Expected foreign cost Parameters: ¿ = 0:1, t=0.1, ®= 0.8, p = 2, Á = 0:5, » =0.5, ¹µ = 1, ¾e= 0:4 124

134. With tax advantage: A & B: Centralized GSC > Decentralized Flex-GSC C: Decentralized Flex-GSC > Centralized GSC Essay 3: Decentralized Flex-GSC vs.Centralized GSC Outsourcing cost variability Expected foreign cost Parameters: ¿ = 0:1, t=0.1, ®= 0.8, p = 2, Á = 0:5, » =0.5, ¹µ = 1, ¾e= 0:4 125

135. Essay 3: Conclusions Incorporate tax perspective into global SCM; 126

136. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; 127

137. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; Incentive role pushes the transfer price down; 128

138. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; Incentive role pushes the transfer price down; Higher outsourcing cost can be profitable for the firm. 129

139. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; Incentive role pushes the transfer price down; Higher outsourcing cost can be profitable for the firm. Flexibility loosens the incentive constraint on the transfer price and leads to higher tax benefits; 130

140. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; Incentive role pushes the transfer price down; Higher outsourcing cost can be profitable for the firm. Flexibility loosens the incentive constraint on the transfer price and leads to higher tax benefits; Flexibility is helpful when the cost variability is low. 131

141. Essay 3: Conclusions Incorporate tax perspective into global SCM; Dual role of transfer price: incentive and tax; Incentive role pushes the transfer price down; Higher outsourcing cost can be profitable for the firm. Flexibility loosens the incentive constraint on the transfer price and leads to higher tax benefits; Flexibility is helpful when the cost variability is low. Tax benefits make the centralized control optimal in more cases. 132

142. Proposal Incorporate flexibility in the form of postponement of the sourcing decision into Essay 3 Do pair-wise comparisons of decentralized structures Show the effect of exchange rate variability on the aforementioned comparisons 133

143. Thank you ! 134

144. BACK-UP SLIDES… 135

145. Why is it important for global SCM? What other factors are important for the global sourcing decision? Cost Exchange rate Demand Lead times Tariffs Availability Political stability Local content rules Import quotas and tariffs … 136

146. Decentralized Flex-GSCLocal profit 137 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

147. Decentralized Flex-GSCForeign profit 138 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

148. Decentralized Flex-GSCHQ after-tax profit 139 Headquarters Local selling division p, t Foreign producing division c e, ¿ Offshore Transfer at T Outsource External supplier θ Decision variables Random variables Parameters

149. Research overview Shunko M., L. Debo, S. Gavirneni “Transfer Pricing and Sourcing Strategies in Global Supply Chains”; Shunko M., L. Debo, S. Gavirneni “Transfer Pricing and Offshoring in Price-Setting Global Supply Chains with Cost Uncertainty”; Shunko M., S. Gavirneni “Role of Transfer Prices in Global Supply Chains with Random Demands”. Global Taxation, Transfer Pricing Supply Chain Management Accounting

150. Research overview Shunko M., G. Fenu, S. Kekre, A. Scheller-Wolf, V. Tardiff , S. Tayur, and T. Yunes· “Implementing a Bundling, Lane and Price Sheet Strategy for Caterpillar's Compact Construction Equipment Division” Cost of Complexity Supply Chain Management Accounting

151. Research overview Shunko M., S.H. Cho, P. Enders, and A. Scheller-Wolf, “Impact of Emergency Departments’ Delay Signaling on Patient and Hospitals Welfare”. Shunko M., A. Scheller-Wolf “Value of Information Sharing between Emergency Departments and Ambulance Crews”. ED Operations, Ambulance Diversion Health Care Management Supply Chain Management

152. 5-Year Research Agenda International Taxation and Transfer Pricing Intellectual Property, Royalty, Licensing Local Content Rules Healthcare Management Value of Information Sharing in Hospital Networks Inpatient Bed Assignment Strategies for ED Patients 143