Sustainable efforts, procurement outsourcing, and channel co-opetition in emerging markets

Abstract

Emerging markets have witnessed the logistics volume surge along with economic growth, which also brings environmental issues such as packaging waste. Therefore, many responsible logistics service providers (LSPs) are observed to put efforts in developing sustainable logistics. Such efforts improve the LSP’s brand image to expand the market potential, and benefit the original equipment manufacturers (OEMs) who use the LSP’s logistics service. In this paper, we consider an OEM and a LSP’s preferred outsourcing structures by incorporating the LSP’s sustainable efforts and the competition with the OEM when it has the self-branded business. The introduction of sustainable efforts alter the LSP’s cost structure, and eventually, the supply chain parties’ preferences over the OEM’s procurement outsourcing. For the OEM, the bundled outsourcing (outsourcing both procurement and logistics functions to the LSP) does not necessarily yield a lower procurement cost than only outsourcing the logistics, because the LSP possesses sufficient service pricing flexibility. Interestingly, the LSP prefers the OEM’s bundled outsourcing when the OEM’s brand image advantage is either not significant or very significant. The driving force is the tradeoff between the profits from product sales and outsourcing services. Lastly, we compare the environmental performances under alternative outsourcing structures, showing the simultaneous improvement of the OEM’s profits, the LSP’s profits, and the environmental performance is achievable when the OEM outsources the bundled functions of procurement and logistics.