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Profits of MNC

In a international world how are the profits and revenue distributed among the various subsidiaries of an MNC? Usually all the offices are dedicated in manufacturing some component or the other of the same product-line. Hence it is impossible to account for the Value addition of each activity.
eg: Take the case of this hypothetical cell-phone giant.
1. The board and circuitry are designed in England.
2. The stylish casing is designed in Paris
3. The LCD display and GUI in Silicon Valley
4. The software is written by coolies in Bangalore
5. The chips are designed by Scandinavian office
6. They are manufactured in the Fab-lab of Taiwan, tested and assembled in Korea.
7. The assembly is done China
8. Sales are in America.
9. Promoter/Head quarters are in a separate country.

The phone costs 40$ and sells for 100$. So how is the 60$ profit and revenue distributed? To my surprise each of the 9 offices got a small percentage of the profit. While most of the profit (around 50$ per phone) was attributed to an office (which exists only on paper) at Bermudas. Just because it provided the company with a tax-holiday.

Which every country gives a tax-holiday seems to get all the profits and revenue. The company is not cooking any books; it has a legitimately registered investment company at Bermudas. By underreporting the profits of high tax centers, it maximizes the overall profits.

So next time a report says profitability of MNC is dipping etc., take it with a pinch of salt. Companies are in the business of making money. If their international arms were making as much losses as they are reporting they would have closed it down long ago.

Most international arms of Coke/Pepsi make losses. Simply because the overpriced syrup and royalty costs. Similarly some car manufacturer actually under-report revenue of their international arms so that their US factories have extra margins. Extra Margins is a advertising gimmick to demonstrate better manufacturing capabilities of USA and riding high on the patronage waves.

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