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Running head: CALICO CASE STUDY

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Calico Case Study
Name
Institution
Date

CALICO CASE STUDY

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a. Functional Analysis of Calico and Tortie for the year 2016
Functional analysis relates to breaking down a problem into various component functions
to make the relevant decisions. Calico Company appears to be a larger conglomerate, operating in
country X. It is more interested in spreading its operations and, thereby, seeks to enter the Y
market. However, from the start, the company appeared to be less willing to take part in the general
logistics that come with operating it in country Y. It, therefore, sought the services of Tortie
through buying it wholly. Tortie is charged with buying farm produce for Calico in country Y. As
operations develop, the Tortie is tasked with selling some of the products directly to third parties
without seeking the authorization of Calico. There is, therefore, the need to determine whether the
arrangement should continue about how both countries stand to benefit or lose.
As it relates to the management of the company, Calico has a huge influence over Tortie.
Most of the major decisions are made at the head office. The personnel at Tortie only receive
directives from Calico. Since Calico would be less informed about the situation on the ground as
it relates to the market in country Y, there is a chance that it would decide without bearing in mind
some of the changes that could take place and, thereby, impact negatively on its performance
(Wittendorff, 2010). However, the constant liaison between the staff at Tortie and the management
at Calico would aid to ensure that the right procedures are established with the aim of providing
both firms with the necessary profits.
About the marketing structure, Calico also appears to benefit as it is applying the services
of a company which is already conversant with the market. Tortie can, therefore, purchase the
different products from the market and ensure that they either reach the Calico warehouses or are
sold off to third-party companies (Wittendorff, 2010). The situation, therefore, shows that the
company has a chance to benefit. Tortie also benefits as it can retain its activities in the market.

CALICO CASE STUDY

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The company, therefore, retains the capability to advise the staff from Calico on the right actions
to take to improve the performance of the entity in the country. As a result, since both companies
stand to benefit from the arrangement, there is a possibility for them to keep on engaging in the
business relationship.
b. Appropriate Price Transfer Pricing Method
Concerning the relationship that exists between the two companies, there is the need for
them to use the Comparative Uncontrollable price (CUP) method while having a third party sale
of products from Tortie to Calico. The CUP method is normally used for the comparison of prices
of goods or services that are transferred in a transaction that is controlled to a situation where a
transaction is not controlled. As a result, both Calico would bear the ability to determine the general
prices offered on goods (Wittendorff, 2010). The CUP method is applicable for both internal and
external transactions. Calico would, therefore, make a determination of the prices of goods in
Country Y as purchased by Tortie. The firm will, therefore, bear the ability to determine the price
that it will affix to its products while reselling them to have cut on the number of profits that it
stands to make in the long run.
The Resale Price (RP) method may not appropriate as the prices of agricultural
commodities tend to fluctuate from time to time. As a result, where Calico happens to use the
strategy to affix the price on the products while reselling them, it could create a major challenge
as it might fail to provide the right index on which it would attach the pricing (Wittendorff, 2010).
As a result, the company might end up fixing a price that would scale buyers and, thereby, creates
a huge challenge concerning ensuring that the firm does not experience a loss. The firm would,
therefore, need to establish some of the changes in prices that occur in the industry with the aim
of making the right decisions in regards to its transactional structure.

CALICO CASE STUDY

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The Mechanism of Resale Price (MRP) method is also less appropriate as it is based on
reducing the price that is based on the company doing the reselling, such as Calico (Wittendorff,
2010). The exercise would, therefore, be less desirable, given the fact that it reduces the chances
of the company making the necessary profits after securing the goods.
c. Elements of Functional Analysis that would have changed in 2017
By sending the company two additional employees with the authorization to make
decisions, Calico can decentralize its decision-making aspect of running its operations in country
Y. The company is also able to retain the control of operations within the country. The staff is well
aware of the vision and strategic goals of the company (Wittendorff, 2010). As a result, they are
likely to make decisions that will be of benefit for Calico. The exercise also favors Tortie as Calico
makes the major decisions. Given the fact that Calico also caters to the cost of insurance and
shipping of the products, it happens to save Tortie a lot of costs that may be involved in the process.
The changes that would be applicable in 2017 may also see Tortie make more money as a
separate entity by being able to sell products to third parties without having them go through the
warehouse for Calico first. The process would be quite important as it will enable the company
makes the relevant marketing determination without seeking much advice from Calico
(Wittendorff, 2010). The two employees f...