Purchasing new for remanufacturing: Sourcing co-opetition, tax-planning and data validation

Abstract

In practice, to guarantee remanufactured products to be “the same as new”, many remanufacturers purchase the core component and then assemble it with the remanufactured non-core components. Doing so enables the remanufacturer to keep the high product quality and achieve an overall cost saving, but the core component supplier like LG usually has the self-brand business that competes with the remanufacturer. We refer to their relationship as sourcing co-opetition in this study, under which the core component supplier determines its production location: overseas production for tax-planning benefit vs. domestic production for centralized supply efficiency. We reveal that the core component supplier’s inclination towards overseas/domestic production is non-monotonic, depending on both the cost disadvantage and the corporate income tax disparity between the production and sales countries/regions. When the new product’s cost disadvantage is not significant, overseas production is preferred under either limited or very large tax disparity. Interestingly, we find that overseas production can lead to a higher system profit and better environmental performance, indicating a win-win situation for the Pareto improvement of profitability and environmental sustainability.