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Transnational corporation’ localization procurement strategies under tax policies and uncertain operation risks: delegation or control

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Abstract

This paper investigates the selection of the procurement strategy of transnational corporations (TNCs) when local original equipment manufacturers (OEMs) adopt either delegation or control procurement strategies. By solving the game models of the TNC and the OEM under different procurement structures, we find that as the TNC is more risk loving and the nonrefundable VAT rate increases, the procurement strategy of the TNC will change from delegation to control and then switch back to the former again; and this result will hold as the procurement strategy of the OEM changes. Furthermore, when the OEM embraces the control procurement strategy, the TNC will be more liable to espouse the delegation procurement strategy when the OEM adopts the delegation strategy. Finally, as the TNC is more risk loving and the nonrefundable VAT rate higher, it is easier for the TNC and the OEM to reach a consensus on their preference for the delegation procurement strategy and enjoy the benefits of scale and synergy effect.

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Notes

  1. See Appendix A for a detailed description and illustrative examples of VAT.

  2. The profit function calculation is given in Appendix A.

  3. The profits of the participants under the two procurement structures when the OEM adopts the control procurement strategy is given in the Appendix A.

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Authors and Affiliations

  1. College of Mathematics and Statistics, Huanggang Normal University, Hubei, 438000, China

    Huiru Chen & Chen Pan

  2. School of Management, Chongqing Technology and Business University, Chongqing, 400067, China

    Bai Yang & Zhiguo Li

Authors
  1. Huiru Chen
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  2. Bai Yang
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  3. Zhiguo Li
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  4. Chen Pan
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Correspondence to Zhiguo Li.

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Funding

This work is backed up by the National Natural Science Foundation of China (Nos. 71771165, 61873108 and 72071092), the Project of Humanities and Social Sciences in the Hubei Education Department (No. 20Y181 and Q20202905).

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Chen, H., Yang, B., Li, Z. et al. Transnational corporation’ localization procurement strategies under tax policies and uncertain operation risks: delegation or control. J Ambient Intell Human Comput 14, 13647–13659 (2023). https://doi.org/10.1007/s12652-022-03830-z

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  • DOI: https://doi.org/10.1007/s12652-022-03830-z

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