Companies that operate independently, but under the same logo?

[Naked shorts]

Does anyone know why a group of companies, operating under the same logo and the same stock ticker but fulfilling different business activities would charge each other full industry fees?

For example, the group in question has a HR company and a logistics company. The logistics company outsources its HR needs to the HR company. The HR company then turns around and charges the logistics company full fees for its services. The logistics company sometimes uses external HR companies because the fees quoted by the internal HR company are too high.

What is the point of keeping these businesses separate if they are all the same company? Isn't the point of having many companies in a group to leverage the synergies they can offer one another and in consequence reduce overall costs?

 

[matty77]

Talking about Toll?

 

[skc]

Does anyone know why a group of companies, operating under the same logo and the same stock ticker but fulfilling different business activities would charge each other full industry fees?

For example, the group in question has a HR company and a logistics company. The logistics company outsources its HR needs to the HR company. The HR company then turns around and charges the logistics company full fees for its services. The logistics company sometimes uses external HR companies because the fees quoted by the internal HR company are too high.

What is the point of keeping these businesses separate if they are all the same company? Isn't the point of having many companies in a group to leverage the synergies they can offer one another and in consequence reduce overall costs?

So called "Transfer pricing" is one of the toughest decisions in business management imo. Charging full fee is common and there are pros and cons each way.

Pros
- Make each department responsible for their own P/L and margin etc. If HR was to provide the service cheaply to the logistics, HR's P/L looks worse than it should be and Logistics' looks better, hiding true performance.
- Gives each department / company the ability to source the right product / service, even from outside the company. If logistics is forced to use the service from their own HR, next thing you know there will be great blame storming sh.it fight when things go wrong.
- No impact on overall company P/L - it's all a wash in consolidation process.

Cons
- Doesn't always foster cooperation
- Lose profit to external organisations (like you say)

Probably others but my management textbooks are not at hand...

 

[Naked shorts]

So called "Transfer pricing" is one of the toughest decisions in business management imo. Charging full fee is common and there are pros and cons each way.

Pros
- Make each department responsible for their own P/L and margin etc. If HR was to provide the service cheaply to the logistics, HR's P/L looks worse than it should be and Logistics' looks better, hiding true performance.
- Gives each department / company the ability to source the right product / service, even from outside the company. If logistics is forced to use the service from their own HR, next thing you know there will be great blame storming sh.it fight when things go wrong.
- No impact on overall company P/L - it's all a wash in consolidation process.

Cons
- Doesn't always foster cooperation
- Lose profit to external organisations (like you say)

Probably others but my management textbooks are not at hand...

Thanks, thats a big help.

 

[doctorj]

So called "Transfer pricing" is one of the toughest decisions in business management imo. Charging full fee is common and there are pros and cons each way.

Pros
- Make each department responsible for their own P/L and margin etc. If HR was to provide the service cheaply to the logistics, HR's P/L looks worse than it should be and Logistics' looks better, hiding true performance.
- Gives each department / company the ability to source the right product / service, even from outside the company. If logistics is forced to use the service from their own HR, next thing you know there will be great blame storming sh.it fight when things go wrong.
- No impact on overall company P/L - it's all a wash in consolidation process.

Cons
- Doesn't always foster cooperation
- Lose profit to external organisations (like you say)

Probably others but my management textbooks are not at hand...

Does the HR subsidiary provide services to companies outside the group? Often it's done so the business unit can be more easily sold off seperate from the core business.

 

[Smurf1976]

Not quite what you're looking for, but the public service, local councils, state owned companies etc often work this way internally.

Eg local council has a council as such (ie elected members) with administration etc. And it has a works unit that does roadworks etc. Everything done by the works unit is charged back to the council proper in the same manner as if it were done by a contractor. And some of the works undertaken by the council proper aren't done by its' own works unit - in some cases the works unit has to tender for the work.

Same in some cases in the public service - state govt ends up effectively being a "contractor" to the Australian Government in many cases.

Same with state-owned companies. Eg Hydro Tasmania generates electricity in Tasmania. It has a subsidiary, Roaring 40's, which operates power generation in Tas and SA. Plus there's Entura which is an engineering consulting business operating within Australia and internationally. And then there's Momentum which retails electricity in Victoria - power that they simply buy from rival generators in order to retail it in Vic. All are owned by the Hydro-Electric Corporation, itself owned by the Tas state government. They all have the same logo, although Entura and Momentum each use it in different colours.

No doubt there's quite a few similar situations in the private sector I would assume. I don't recall names, but I've often dealt with companies that are part of a "group" in this manner.

I'm not certain, but I suspect the likes of Wesfarmers may operate this way in practice - Bunnings is one part, Coles is another, producing LP Gas is a very different business, with only a minor amount of that gas sold by Bunnings, but ultimately it's still part of Wesfarmers.

Gunns is primarily a forestry company but until very recently also ran hardware stores. Presumably the timber sold at the hardware stores came from Gunns' own sawmills, but apart from that it would seem to have been a separate business.

Telstra is another. A network owner/operator and also a telecommunications retailer which has just started offering services via networks not owned by Telstra. And of course the network side of the business also sells network access to other retailers who operate in competition with Telstra in terms of retailing telecommunications.

 

[skc]

Does the HR subsidiary provide services to companies outside the group? Often it's done so the business unit can be more easily sold off seperate from the core business.

You asking me? Sorry I have no idea what situation is the original poster referring to. I would have thought if the HR department is only internal then that seems a bit silly - as HR should not have p/l and should just be a cost centre overhead. But if the HR do external work than full pricing makes sense.

No doubt there's quite a few similar situations in the private sector I would assume. I don't recall names, but I've often dealt with companies that are part of a "group" in this manner.

I'm not certain, but I suspect the likes of Wesfarmers may operate this way in practice - Bunnings is one part, Coles is another, producing LP Gas is a very different business, with only a minor amount of that gas sold by Bunnings, but ultimately it's still part of Wesfarmers.

Doesn't need to large conglomerates with vastly different business. I used to work for an eingeering consultancy and the various groups within the company (which is ~150 ppl) use full transfer pricing. So the Water group may charge the Bridge group full fee if they need the something done. It makes sense on some levels, although personal issues can come in and one group can pull the rug under the other group if they didn't like them.

 

[Naked shorts]

Does the HR subsidiary provide services to companies outside the group? Often it's done so the business unit can be more easily sold off seperate from the core business.

You asking me? Sorry I have no idea what situation is the original poster referring to. I would have thought if the HR department is only internal then that seems a bit silly - as HR should not have p/l and should just be a cost centre overhead. But if the HR do external work than full pricing makes sense.

Yep, the HR department does external work.