• Korean small business review
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• v.31 no.2
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• pp.85-102
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• 2009

With the continued globalization of world markets, transfer pricing has become one of the dominant sources of controversy in international taxation. Transfer pricing is the process by which a multinational corporation calculates a price for goods and services that are transferred to affiliated entities. Consider a Korean electronic enterprise that buys supplies from its own subsidiary located in China. How much the Korean parent company pays its subsidiary will determine how much profit the Chinese unit reports in local taxes. If the parent company pays above normal market prices, it may appear to have a poor profit, even if the group as a whole shows a respectable profit margin. In this way, transfer prices impact the taxable income reported in each country in which the multinational enterprise operates. It's importance lies in that around 60% of international trade involves transactions between two related parts of multinationals, according to the OECD. Multinational enterprises (hereafter MEs) exert much effort into utilizing organizational advantages to make global investments. MEs wish to minimize their tax burden. So MEs spend a fortune on economists and accountants to justify transfer prices that suit their tax needs. On the contrary, local governments are not prepared to cope with MEs' powerful financial instruments. Tax authorities in each country wish to ensure that the tax base of any ME is divided fairly. Thus, both tax authorities and MEs have a vested interest in the way in which a transfer price is determined, and this is why MEs' international transfer prices are at the center of disputes concerned with taxation. Transfer pricing issues and practices are sometimes difficult to control for regulators because the tax administration does not have enough staffs with the knowledge and resources necessary to understand them. The authors examine transfer pricing practices to provide relevant resources useful in designing tax incentives and regulation schemes for policy makers. This study focuses on identifying the relevant business and environmental factors that could influence the international transfer pricing of MEs. In this perspective, we empirically investigate how the management perception of related variables influences their choice of international transfer pricing methods. We believe that this research is particularly useful in the design of tax policy. Because it can concentrate on a few selected factors in consideration of the limited budget of the tax administration with assistance of this research. Data is composed of questionnaire responses from foreign firms in Korea with investment balances exceeding one million dollars in the end of 2004. We mailed questionnaires to 861 managers in charge of the accounting departments of each company, resulting in 121 valid responses. Seventy six percent of the sample firms are classified as small and medium sized enterprises with assets below 100 billion Korean won. Reviewing transfer pricing methods, cost-based transfer pricing is most popular showing that 60 firms have adopted it. The market-based method is used by 31 firms, and 13 firms have reported the resale-pricing method. Regarding the nationalities of foreign investors, the Japanese and the Americans constitute most of the sample. Logistic regressions have been performed for statistical analysis. The dependent variable is binary in that whether the method of international transfer pricing is a market-based method or a cost-based method. This type of binary classification is founded on the belief that the market-based method is evaluated as the relatively objective way of pricing compared with the cost-based methods. Cost-based pricing is assumed to give mangers flexibility in transfer pricing decisions. Therefore, local regulatory agencies are thought to prefer market-based pricing over cost-based pricing. Independent variables are composed of eight factors such as corporate tax rate, tariffs, relations with local tax authorities, tax audit, equity ratios of local investors, volume of internal trade, sales volume, and product life cycle. The first four variables are included in the model because taxation lies in the center of transfer pricing disputes. So identifying the impact of these variables in Korean business environments is much needed. Equity ratio is included to represent the interest of local partners. Volume of internal trade was sometimes employed in previous research to check the pricing behavior of managers, so we have followed these footsteps in this paper. Product life cycle is used as a surrogate of competition in local markets. Control variables are firm size and nationality of foreign investors. Firm size is controlled using dummy variables in that whether or not the specific firm is small and medium sized. This is because some researchers report that big firms show different behaviors compared with small and medium sized firms in transfer pricing. The other control variable is also expressed in dummy variable showing if the entrepreneur is the American or not. That's because some prior studies conclude that the American management style is different in that they limit branch manger's freedom of decision. Reviewing the statistical results, we have found that managers prefer the cost-based method over the market-based method as the importance of corporate taxes and tariffs increase. This result means that managers need flexibility to lessen the tax burden when they feel taxes are important. They also prefer the cost-based method as the product life cycle matures, which means that they support subsidiaries in local market competition using cost-based transfer pricing. On the contrary, as the relationship with local tax authorities becomes more important, managers prefer the market-based method. That is because market-based pricing is a better way to maintain good relations with the tax officials. Other variables like tax audit, volume of internal transactions, sales volume, and local equity ratio have shown only insignificant influence. Additionally, we have replaced two tax variables(corporate taxes and tariffs) with the data showing top marginal tax rate and mean tariff rates of each country, and have performed another regression to find if we could get different results compared with the former one. As a consequence, we have found something different on the part of mean tariffs, that shows only an insignificant influence on the dependent variable. We guess that each company in the sample pays tariffs with a specific rate applied only for one's own company, which could be located far from mean tariff rates. Therefore we have concluded we need a more detailed data that shows the tariffs of each company if we want to check the role of this variable. Considering that the present paper has heavily relied on questionnaires, an effort to build a reliable data base is needed for enhancing the research reliability.

• Journal of National Security and Military Science
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• s.8
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• pp.49-168
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• 2010

Just before the Korean War, the total number of the North Korean troops was 198,380, while that of the ROK(Republic of Korea) army troops 105,752. That is, the total number of the ROK army troops at that time was 53.3% of the total number of the North Korean army. As of December 2008, the total number of the North Korean troops is estimated to be 1,190,000, while that of the ROK troops is 655,000, so the ROK army maintains 55.04% of the total number of the North Korean troops. If the ROK army continues to reduce its troops according to [Military Reform Plan 2020], the total number of its troops will be 517,000 m 2020. If North Korea maintains the current status(l,190,000 troops), the number of the ROK troops will be 43.4% of the North Korean army. In terms of units, just before the Korean War, the number of the ROK army divisions and regiments was 80% and 44.8% of North Korean army. As of December 2008, North Korea maintains 86 divisions and 69 regiments. Compared to the North Korean army, the ROK army maintains 46 Divisions (53.4% of North Korean army) and 15 regiments (21.3% of North Korean army). If the ROK army continue to reduce the military units according to [Military Reform Plan 2020], the number of ROK army divisions will be 28(13 Active Division, 4 Mobilization Divisions and 11 Local Reserve Divisions), while that of the North Korean army will be 86 in 2020. In that case, the number of divisions of the ROK army will be 32.5% of North Korean army. During the Korean war, North Korea suddenly invaded the Republic of Korea and occupied its capital 3 days after the war began. At that time, the ROK army maintained 80% of army divisions, compared to the North Korean army. The lesson to be learned from this is that, if the ROK army is forced to disperse its divisions because of the simultaneous invasion of North Korea and attack of guerrillas in home front areas, the Republic of Korea can be in a serious military danger, even though it maintains 80% of military divisions of North Korea. If the ROK army promotes the plans in [Military Reform Plan 2020], the number of military units of the ROK army will be 32.5% of that of the North Korean army. This ratio is 2.4 times lower than that of the time when the Korean war began, and in this case, 90% of total military power should be placed in the DMZ area. If 90% of military power is placed in the DMZ area, few troops will be left for the defense of home front. In addition, if the ROK army continues to reduce the troops, it can allow North Korea to have asymmetrical superiority in military force and it will eventually exert negative influence on the stability and peace of the Korean peninsular. On the other hand, it should be reminded that, during the Korean War, the Republic of Korea was attacked by North Korea, though it kept 53.3% of troops, compared to North Korea. It should also be reminded that, as of 2008, the ROK army is defending its territory with the troops 55.04% of North Korea. Moreover, the national defense is assisted by 25,120 troops of the US Forces in Korea. In case the total number of the ROK troops falls below 43.4% of the North Korean army, it may cause social unrest about the national security and may lead North Korea's misjudgement. Besides, according to Lanchester strategy, the party with weaker military power (60% compared to the party with stronger military power) has the 4.1% of winning possibility. Therefore, if we consider the fact that the total number of the ROK army troops is 55.04% of that of the North Korean army, the winning possibility of the ROK army is not higher than 4.1%. If the total number of ROK troops is reduced to 43.4% of that of North Korea, the winning possibility will be lower and the military operations will be in critically difficult situation. [Military Reform Plan 2020] rums at the reduction of troops and units of the ground forces under the policy of 'select few'. However, the problem is that the financial support to achieve this goal is not secured. Therefore, the promotion of [Military Reform Plan 2020] may cause the weakening of military defence power in 2020. Some advanced countries such as Japan, UK, Germany, and France have promoted the policy of 'select few'. However, what is to be noted is that the national security situation of those countries is much different from that of Korea. With the collapse of the Soviet Unions and European communist countries, the military threat of those European advanced countries has almost disappeared. In addition, the threats those advanced countries are facing are not wars in national level, but terrorism in international level. To cope with the threats like terrorism, large scaled army trops would not be necessary. So those advanced European countries can promote the policy of 'select few'. In line with this, those European countries put their focuses on the development of military sections that deal with non-military operations and protection from unspecified enemies. That is, those countries are promoting the policy of 'select few', because they found that the policy is suitable for their national security environment. Moreover, since they are pursuing common interest under the European Union(EU) and they can form an allied force under NATO, it is natural that they are pursing the 'select few' policy. At present, NATO maintains the larger number of troops(2,446,000) than Russia(l,027,000) to prepare for the potential threat of Russia. The situation of japan is also much different from that of Korea. As a country composed of islands, its prime military focus is put on the maritime defense. Accordingly, the development of ground force is given secondary focus. The japanese government promotes the policy to develop technology-concentrated small size navy and air-forces, instead of maintaining large-scaled ground force. In addition, because of the 'Peace Constitution' that was enacted just after the end of World War II, japan cannot maintain troops more than 240,000. With the limited number of troops (240,000), japan has no choice but to promote the policy of 'select few'. However, the situation of Korea is much different from the situations of those countries. The Republic of Korea is facing the threat of the North Korean Army that aims at keeping a large-scale military force. In addition, the countries surrounding Korea are also super powers containing strong military forces. Therefore, to cope with the actual threat of present and unspecified threat of future, the importance of maintaining a carefully calculated large-scale military force cannot be denied. Furthermore, when considering the fact that Korea is in a peninsular, the Republic of Korea must take it into consideration the tradition of continental countries' to maintain large-scale military powers. Since the Korean War, the ROK army has developed the technology-force combined military system, maintaining proper number of troops and units and pursuing 'select few' policy at the same time. This has been promoted with the consideration of military situation in the Koran peninsular and the cooperation of ROK-US combined forces. This kind of unique military system that cannot be found in other countries can be said to be an insightful one for the preparation for the actual threat of North Korea and the conflicts between continental countries and maritime countries. In addition, this kind of technology-force combined military system has enabled us to keep peace in Korea. Therefore, it would be desirable to maintain this technology-force combined military system until the reunification of the Korean peninsular. Furthermore, it is to be pointed out that blindly following the 'select few' policy of advanced countries is not a good option, because it is ignoring the military strategic situation of the Korean peninsular. If the Republic of Korea pursues the reduction of troops and units radically without consideration of the threat of North Korea and surrounding countries, it could be a significant strategic mistake. In addition, the ROK army should keep an eye on the fact the European advanced countries and Japan that are not facing direct military threats are spending more defense expenditures than Korea. If the ROK army reduces military power without proper alternatives, it would exert a negative effect on the stable economic development of Korea and peaceful reunification of the Korean peninsular. Therefore, the desirable option would be to focus on the development of quality of forces, maintaining proper size and number of troops and units under the technology-force combined military system. The tableau above shows that the advanced countries like the UK, Germany, Italy, and Austria spend more defense expenditure per person than the Republic of Korea, although they do not face actual military threats, and that they keep achieving better economic progress than the countries that spend less defense expenditure. Therefore, it would be necessary to adopt the merits of the defense systems of those advanced countries. As we have examined, it would be desirable to maintain the current size and number of troops and units, to promote 'select few' policy with increased defense expenditure, and to strengthen the technology-force combined military system. On the basis of firm national security, the Republic of Korea can develop efficient policies for reunification and prosperity, and jump into the status of advanced countries. Therefore, the plans to reduce troops and units in [Military Reform Plan 2020] should be reexamined. If it is difficult for the ROK army to maintain its size of 655,000 troops because of low birth rate, the plans to establish the prompt mobilization force or to adopt drafting system should be considered for the maintenance of proper number of troops and units. From now on, the Republic of Korean government should develop plans to keep peace as well as to prepare unexpected changes in the Korean peninsular. For the achievement of these missions, some options can be considered. The first one is to maintain the same size of military troops and units as North Korea. The second one is to maintain the same level of military power as North Korea in terms of military force index. The third one is to maintain the same level of military power as North Korea, with the combination of the prompt mobilization force and the troops in active service under the system of technology-force combined military system. At present, it would be not possible for the ROK army to maintain such a large-size military force as North Korea (1,190,000 troops and 86 units). So it would be rational to maintain almost the same level of military force as North Korea with the combination of the troops on the active list and the prompt mobilization forces. In other words, with the combination of the troops in active service (60%) and the prompt mobilization force (40%), the ROK army should develop the strategies to harmonize technology and forces. The Korean government should also be prepared for the strategic flexibility of USFK, the possibility of American policy change about the location of foreign army, radical unexpected changes in North Korea, the emergence of potential threat, surrounding countries' demand for Korean force for the maintenance of regional stability, and demand for international cooperation against terrorism. For this, it is necessary to develop new approaches toward the proper number and size of troops and units. For instance, to prepare for radical unexpected political or military changes in North Korea, the Republic of Korea should have plans to protect a large number of refugees, to control arms and people, to maintain social security, and to keep orders in North Korea. From the experiences of other countries, it is estimated that 115,000 to 230,000 troops, plus ten thousands of police are required to stabilize the North Korean society, in the case radical unexpected military or political change happens in North Korea. In addition, if the Republic of Korea should perform the release of hostages, control of mass destruction weapons, and suppress the internal wars in North Korea, it should send 460,000 troops to North Korea. Moreover, if the Republic of Korea wants to stop the attack of North Korea and flow of refugees in DMZ area, at least 600,000 troops would be required. In sum, even if the ROK army maintains 600,000 troops, it may need additional 460,000 troops to prepare for unexpected radical changes in North Korea. For this, it is necessary to establish the prompt mobilization force whose size and number are almost the same as the troops in active service. In case the ROK army keeps 650,000 troops, the proper number of the prompt mobilization force would be 460,000 to 500,000.

• Journal of Distribution Research
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• v.15 no.3
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• pp.111-137
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• 2010

The basic purpose of this study is to investigate perceived quality and service personal value affecting the result of long-term relationship between service buyers and suppliers. This research presented a constructive model(perceived quality affecting the service personal value and the moderate effect of NFC) in the on off line and then propose the research model base on prior researches and studies about relationships among components of service. Data were gathered from respondents who visit at the education service market. For this study, Data were analyzed by AMOS 7.0. We integrate the literature on services marketing with researches on personal values and perceived quality. The SERPVAL scale presented here allows for the creation of a common ground for assessing service personal values, giving a clear understanding of the key value dimensions behind service choice and usage. It will lead to a focus of future research in services marketing, extending knowledge in the field and stimulating further empirical research on service personal values. At the managerial level, as a tool the SERPVAL scale should allow practitioners to evaluate and improve the value of a service, and consequently, to define strategies and actions to address services for customers based on their fundamental personal values. Through qualitative and empirical research, we find that the service quality construct conforms to the structure of a second-order factor model that ties service quality perceptions to distinct and actionable dimensions: outcome, interaction, and environmental quality. In turn, each has two subdimensions that define the basis of service quality perceptions. The authors further suggest that for each of these subdimensions to contribute to improved service quality perceptions, the quality received by consumers must be perceived to be reliable, responsive, and empathetic. Although the service personal value may be found in researches that explore individual values and their consequences for consumer behavior, there is no established operationalization of a SERPVAL scale. The inexistence of an established scale, duly adapted in order to understand and analyze personal values behind services usage, exposes the need of a measurement scale with such a purpose. This need has to be rooted, however, in a conceptualization of the construct being scaled. Service personal values can be defined as a customer's overall assessment of the use of a service based on the perception of what is achieved in terms of his own personal values. As consumer behaviors serve to show an individual's values, the use of a service can also be a way to fulfill and demonstrate consumers'personal values. In this sense, a service can provide more to the customer than its concrete and abstract attributes at both the attribute and the quality levels, and more than its functional consequences at the value level. Both values and services literatures agree, that personal value is the highest-level concept, followed by instrumental values, attitudes and finally by product attributes. Purchasing behaviors are agreed to be the end result of these concepts' interaction, with personal values taking a major role in the final decision process. From both consumers' and practitioners' perspectives, values are extremely relevant, as they are desirable goals that serve as guiding principles in people's lives. While building on previous research, we propose to assess service personal values through three broad groups of individual dimensions; at the self-oriented level, we use (1) service value to peaceful life (SVPL) and, at the social-oriented level, we use (2) service value to social recognition (SVSR), and (3) service value to social integration (SVSI). Service value to peaceful life is our first dimension. This dimension emerged as a combination of values coming from the RVS scale, a scale built specifically to assess general individual values. If a service promotes a pleasurable life, brings or improves tranquility, safety and harmony, then its user recognizes the value of this service. Generally, this service can improve the user's pleasure of life, since it protects or defends the consumer from threats to life or pressures on it. While building upon both the LOV scale, a scale built specifically to assess consumer values, and the RVS scale for individual values, we develop the other two dimensions: SVSR and SVSI. The roles of social recognition and social integration to improve service personal value have been seriously neglected. Social recognition derives its outcome utility from its predictive utility. When applying this underlying belief to our second dimension, SVSR, we assume that people use a service while taking into consideration the content of what is delivered. Individuals consider whether the service aids in gaining respect from others, social recognition and status, as well as whether it allows achieving a more fulfilled and stimulating life, which might then be revealed to others. People also tend to engage in behavior that receives social recognition and to avoid behavior that leads to social disapproval, and this contributes to an individual's social integration. This leads us to the third dimension, SVSI, which is based on the fact that if the consumer perceives that a service strengthens friendships, provides the possibility of becoming more integrated in the group, or promotes better relationships at the social, professional or family levels, then the service will contribute to social integration, and naturally the individual will recognize personal value in the service. Most of the research in business values deals with individual values. However, to our knowledge, no study has dealt with assessing overall personal values as well as their dimensions in a service context. Our final results show that the scales adapted from the Schwartz list were excluded. A possible explanation is that although Schwartz builds on Rokeach work in order to explore individual values, its dimensions might be especially focused on analyzing societal values. As we are looking for individual dimensions, this might explain why the values inspired by the Schwartz list were excluded from the model. The hierarchical structure of the final scale presented in this paper also presents theoretical implications. Although we cannot claim to definitively capture the dimensions of service personal values, we believe that we come close to capturing these overall evaluations because the second-order factor extracts the underlying commonality among dimensions. In addition to obtaining respondents' evaluations of the dimensions, the second-order factor model captures the common variance among these dimensions, reflecting the respondents' overall assessment of service personal values. Towards this fact, we expect that the service personal values conceptualization and measurement scale presented here contributes to both business values literature and the service marketing field, allowing for the delineation of strategies for adding value to services. This new scale also presents managerial implications. The SERPVAL dimensions give some guidance on how to better pursue a highly service-oriented business strategy. Indeed, the SERPVAL scale can be used for benchmarking purposes, as this scale can be used to identify whether or not a firms' marketing strategies are consistent with consumers' expectations. Managerial assessment of the personal values of a service might be extremely important because it allows managers to better understand what customers want or value. Thus, this scale allows us to identify what services are really valuable to the final consumer; providing knowledge for making choices regarding which services to include. Traditional approaches have focused their attention on service attributes (as quality) and service consequences(as service value), but personal values may be an important set of variables to be considered in understanding what attracts consumers to a certain service. By using the SERPVAL scale to assess the personal values associated with a services usage, managers may better understand the reasons behind services' usage, so that they may handle them more efficiently. While testing nomological validity, our empirical findings demonstrate that the three SERPVAL dimensions are positively and significantly associated with satisfaction. Additionally, while service value to social integration is related only with loyalty, service value to peaceful life is associated with both loyalty and repurchase intent. It is also interesting and surprising that service value to social recognition appears not to be significantly linked with loyalty and repurchase intent. A possible explanation is that no mobile service provider has yet emerged in the market as a luxury provider. All of the Portuguese providers are still trying to capture market share by means of low-end pricing. This research has implications for consumers as well. As more companies seek to build relationships with their customers, consumers are easily able to examine whether these relationships provide real value or not to their own lives. The selection of a strategy for a particular service depends on its customers' personal values. Being highly customer-oriented means having a strong commitment to customers, trying to create customer value and understanding customer needs. Enhancing service distinctiveness in order to provide a peaceful life, increase social recognition and gain a better social integration are all possible strategies that companies may pursue, but the one to pursue depends on the outstanding personal values held by the service customers. Data were gathered from 284 respondents in the korean discount store and online shopping mall market. This research proposed 3 hypotheses on 6 latent variables and tested through structural equation modeling. 6 alternative measurements were compared through statistical significance test of the 6 paths of research model and the overall fitting level of structural equation model. and the result was successful. and Perceived quality more positively influences service personal value when NFC is high than when no NFC is low in the off-line market. The results of the study indicate that service quality is properly modeled as an antecedent of service personal value. We consider the research and managerial implications of the study and its limitations. In sum, by knowing the dimensions a consumer takes into account when choosing a service, a better understanding of purchasing behaviors may be realized, guiding managers toward customers expectations. By defining strategies and actions that address potential problems with the service personal values, managers might ultimately influence their firm's performance. we expect to contribute to both business values and service marketing literatures through the development of the service personal value. At a time when marketing researchers are challenged to provide research with practical implications, it is also believed that this framework may be used by managers to pursue service-oriented business strategies while taking into consideration what customers value.