Tech Vista On September 5, 2022, Sarah Thompson, divisional manager at Tech Vista received two special orders of smartphones manufactured by her division. The decision faced by Sarah Thompson revolves around choosing between these two orders, each presenting unique opportunities and implications. Sarah had to consider the possible impact of this decision on the performance of her division. On the other hand, the CEO, David Chambers, has to consider the overall impact of this decision on the company's profitability. Company Background Founded in 2005, Tech Vista is a prominent technology company in the consumer electronics industry, renowned for its innovation and cutting-edge products. With a rich history of delivering groundbreaking solutions, the company has secured a prominent position in the competitive market. Operating with a partially integrated structure, Tech Vista empowers divisional managers with decision-making autonomy while recognizing the CEO, Mr. David Chambers, as the ultimate decision-maker in critical situations when the overall company performance is affected. Over the years, Tech Vista has nurtured two divisions, each playing a critical role in the company's success: Vista Phones Division, led by Manager Sarah Thompson, specializes in manufacturing and marketing high-quality smartphones, while CamTech Division, led by Manager Michael Campbell, excels in advanced camera modules and software solutions. As Tech Vista continues to thrive, the transfer pricing policy emerges as a key focal point for the company's growth. Vista Phones, driven by Sarah, prides itself on producing smartphones equipped with advanced features and captivating designs. On the other hand, CamTech, under the leadership of Michael, specializes in developing camera modules and software services celebrated for their exceptional image quality and cutting-edge technology. CamTech's proprietary algorithms for image processing and computational photography significantly enhance the camera performance of Vista Phones' smartphones, bolstering Tech Vista's competitive edge in the consumer electronics market. Challenges Faced by the Company Amidst Tech Vista's prosperity, David Chambers and the divisional managers confront several complex challenges. One of the foremost challenges involves evaluating the effectiveness of the transfer pricing policy in capturing the unique value offered by CamTech's camera modules and software services. Striking a delicate balance between incentivizing CamTech's contributions and aligning the divisions with Tech Vista's collective strategic objectives is essential to the company's overall profitability. Vista Phones used to exclusively use the camera modules and software services from CamTech in their smartphones, with the transfer price set at the market price. Over time, the landscape of the consumer electronics industry has been evolving rapidly, with new technologies continuously emerging and customer preferences shifting towards personalized experiences. As a result, Tech Vista's business environment has witnessed an increasing demand for specialized camera features and cutting-edge image processing capabilities. In response to Tech Vista 2 | P a g e these market dynamics, the company has adapted its operational structure, allowing each division the freedom to seek opportunities beyond internal collaborations. This strategic decision aims to empower the divisions to explore partnerships and transactions with external companies, enabling them to leverage external expertise and resources while fostering innovation and meeting customer demands effectively. This new trend has decreased the volume of internal transfer from CamTech to Vista Phones. While CamTech also sells to external parties, it has been operating with excess capacity over the past few years. As Tech Vista receives two external orders, each promising significant growth opportunities, Ms. Thompson and Mr. Chambers must make a critical decision. The first order comes from Mobile Pros, a major smartphone retailer seeking 500 smartphones from Vista Phones, each at $950. Accepting this order would necessitate sourcing camera modules and software services internally from CamTech, adhering to the current transfer pricing policy. The current market price for the standard camera modules and software services from CamTech are $275/phone and $80/phone, respectively. The incremental cost to CamTech are $215/phone and $55/phone for the camera modules and software services. At the same time, if Vista Phone accepts the order, Mobile Pros will also order CamTech to develop a special image processing algorithm for these phones. Mobile Pros has offered to pay CamTech $50/phone for developing this new algorithm, which will cost approximately $20/phone to CamTech. CamTech has excess capacity even after Tech Vista accepts the order from Mobile Pros. On the other hand, the second order is from Pixel Snap, a leading photography company seeking customized smartphones tailored to professional photographers. Pixel Snap wants to order 500 phones for $1050 each. To fulfill this unique order, Vista Phones must explore external procurement of camera modules from supplier Snap Lens and seek software services from various external providers, instead of sourcing from CamTech. Vista Phones has asked for a quote for the camera modules from Super Lens. Super Lens offers to sell the camera module at $300/phone. The quotes from the external software services has offered to provide software services meeting the requirements at $90/phone. Vista Phones' remaining production capacity in September is 550 phones. The cost to Tech Vista to produce a phone in addition to the camera modules and software services is $390/phone. Both orders requires delivery by the end of September, which means Sarah can only accept one order. Questions: 1. Analyze the potential benefits and drawbacks of accepting the Mobile Pros order and sourcing camera modules and software services internally from CamTech. 2. Evaluate the implications of accepting the Pixel Snap order, procuring camera modules from external supplier Super Lens, and seeking software services from external providers. 3. Compare the financial implications of both options for Vista Phones and Tech Vista as a whole, considering short-term and long-term profitability. 4. Discuss the strategic considerations and market positioning implications associated with each decision and CEO David Chambers' role in resolving this transfer pricing dilemma