Moving sequence preference in coopetition outsourcing supply chain: Consensus or conflict

Abstract

In performing outsourcing tasks for original equipment manufacturers (OEMs), some competitive contract manufacturers (CCMs) develop enhanced production capabilities and begin to launch their own products. This gives rise to novel questions with respect to the moving sequence preferences of OEMs and CCMs and, particularly, whether they can reach consensus or will experience conflict. To capture these issues, we develop a model in which an OEM and its CCM compete through three game sequences: the simultaneous game, the CCM-as-leader game and the OEM-as-leader game. By comparing these games, we demonstrate that as the wholesale price increases, the OEM's preference shifts from moving first to moving simultaneously and then to moving last, while the CCM's preference shifts from moving first to moving last and then back to moving first in the case of a high outsourcing rate; these findings differ from most prior research results. Combining their preferences, we also obtain another distinctive insight that in both the CCM-as-leader game and the OEM-as-leader game, they can achieve consensus without concessions by either party under a high degree of cooperative manufacturing, moderate competition between channels and low market variation; however, in the simultaneous game, they always conflict with one another. Further, we find that the CCM, when moving first, may determine a lower production quantity than those in other games under the effect of coopetition, which contrasts with the conventional wisdom that the first mover gains the largest market share.