Remanufacturing in global supply chains: Self-operating or licensing?

Abstract

Nowadays, globalization and decarbonization have emerged as new normals for supply chains worldwide. In this paper, we investigate remanufacturing strategies within a global supply chain, aiming to provide managerial insights through the research to assist businesses in better integrating into the new normals. Within the global supply chain, an original equipment manufacturer (OEM) located in the home country sells its products to a foreign country through a local retailer. To establish a closed-loop supply chain, the OEM faces two strategic choices, i.e., self-operating remanufacturing in its home country (Strategy A) or licensing remanufacturing to a local remanufacturer (LR) in the foreign country (Strategy B). Utilizing game-theoretical models, our study first explores the operational decisions regarding quantities and prices made by the OEM, the retailer, and the LR. The analysis reveals that a higher cost disparity between the new and remanufactured products or lower cross-border recycling costs for used products can potentially stimulate firms’ incentives for recycling and remanufacturing. Second, upon comparing the equilibrium profits under the two strategies, we demonstrate that lower cross-border recycling costs consistently encourage the OEM to opt for self-operating remanufacturing. Interestingly, we find that the impact of the production cost disparity on the OEM’s strategic choice is non-monotonic; that is, either a low or high disparity of cost can incentivize the OEM to choose licensing remanufacturing, whereas a moderate cost disparity leads to self-operating remanufacturing. We also explored the impact of remanufacturing strategies on sustainability. Furthermore, we have examined governmental preferences regarding firms’ adoption of remanufacturing strategies. Our findings indicate that both countries can benefit from the OEM’s self-operating remanufacturing, providing an explanation as to why cross-border recycling and remanufacturing are not entirely prohibited by governments worldwide.