The Impacts of Markets and Tax on a Multinational Firm's Procurement Strategy in China

Jiayan Xu, Vernon N. Hsu and Baozhuang Niu

Production and Operations Management, 2018, vol. 27, issue 2, 251-264

Abstract: Motivated by observations in the greater China region, this paper studies a multinational firm (MNF)'s preferences between two procurement strategies in a global business environment. The MNF relies on a contract manufacturer (CM) to produce its products, which serve both markets within (domestic market) and outside (overseas market) China. The MNF is assumed to be monopolistic in the overseas market but faces competition from a local original equipment manufacturer (OEM) who outsources both manufacturing and component procurement to the CM. The MNF will decide whether to control its component procurement (consignment strategy) or delegate that function to the CM (turnkey strategy). Our study indicates that a number of factors unique to the global supply chain environment, such as a multi†market structure with different sizes and natures of competition, and a set of tax rules that gives differential treatment to products serving different markets, have the potential of impacting the MNF's choice of consignment vs. turnkey strategies, sometimes in interesting ways. In particular, we find that when attempting to balance the pros and cons of cooperating with the local OEM under turnkey while competing against it in the domestic market, the MNF's preference could switch twice from turnkey to consignment and back to turnkey, and its global profits could first decrease and then increase, as the domestic market grows. Our study also highlights the importance of making a company's global supply chain management decisions while considering international tax rules.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
https://doi.org/10.1111/poms.12798

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:popmgt:v:27:y:2018:i:2:p:251-264

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().