Outsourcing decision-making in global remanufacturing supply chains: The impact of tax and tariff regulations

Abstract

In contemporary international remanufacturing supply chains, whether an original equipment manufacturer (OEM) engages in remanufacturing operations or outsources to a third-party remanufacturer (TPR) is influenced by tax and tariff regulations. This study develops a two-stage game model for the decision-making of an OEM from an exporting country showing that the optimal remanufacturing model is significantly affected by the tax and tariff regulations of the importing country and more particularly, the difference between sales tax on remanufactured products and the unit product import tariffs on new products. The model selections for the OEM and the importing country align when this difference is close to zero. This paper is one of the few examining the impact of tax and tariff regulations on outsourcing decisions in remanufacturing contexts, which is largely neglected in the extant literature but has become increasingly important, especially with recent development trends of deglobalization (e.g., Brexit, the US–China trade war, and various sanctions). The significance of this study is threefold: the work makes novel theoretical contributions to the decision-making game model with tax and tariff constructs taken into consideration, has practical implementations for optimizing the strategic business deployment of OEMs, and has implications for consideration of policy and social welfare by policy makers of the destination country.