Case Analysis : Zumwald AG Zumwald AG is a German company specialized in the production and retail of medical equipment. In August 2002, the launch of a new ultrasound imaging system, X73, triggered a transfer pricing dispute between two of its six divisions, ISD and Heidelberg. A third division, ECD is indirectly involved because it usually provides some components to Heidelberg. The origin of the dispute between Heidelberg and ISD is the choice of supplier for some components of the X73. Zumwald has a culture of being highly decentralized : it is organized in six operating divisions and partially vertically integrated however the company policy is to let division managers choose their suppliers internally or externally. Nonetheless, in the case of the X73, the division manager of Heidelberg, Paul Halperin, challenges the choice made by ISD managers to supply themselves externally for obvious cost-­‐‑based motivations. The managing director of Zumwald, Mr. Rolf Fettinger, is asked to help settle the dispute. The situation is very tricky for Mr. Fettinger. Indeed, freedom of sourcing has been the policy of the company as of now and a settlement in favor of Heidelberg could create a disturbing precedent. On the other hand, Heidelberg was involved in the designing of the X73 and could legitimately expect to be a supplier of ISD on this project. Mr. Fettinger must also keep in mind that Heidelberg might need a small boost because of its activity’s slowdown. Given these elements, I would advise Mr. Fettinger to