An analysis of the local market in Country D indicates that gross margin paid to distributors of product X is 20%. However, this does not necessarily mean that 20% is also an appropriate gross margin for Malaysian distributors of product X. Margins in different markets are influenced by factors such as consumer preferences which would affect the retail price of the goods, and relative competitiveness of the distribution sector which would affect the margin received.
Arm's length prices vary across different economic circumstances. Factors that may affect the price or margin of a transaction include:
- the geographic location of the market;
- the size of the market;
- the extent of competition in the markets;
- the level of supply and demand in the market as a whole and in particular regions;
- customer purchasing power;
- cost of production including the costs of land, labour and capital, and transport costs;
- the level of the market (e.g. retail or wholesale);
- the date and time of transactions;
- the availability of substitute goods and services; and
- the extent of government intervention e.g. whether goods compared are price controlled.