Foreign direct investment or outsourcing: A tax integrated supply chain decision model

Abstract

Multinational companies should look at tax information at a strategic level. Current literature on supply chain optimization does not emphasize on tax, unfortunately, to make more realistic decisions about where to make, source, locate, move and store products. Many developing economies, specifically, Asian countries, have included tax-holidays in their export-import (EXIM) policy for companies operating in Free Trade Zones (FTZs). Including this information in the supply chain planning could save millions of dollars for the companies operating globally. In this paper, we propose a tax integrated mixed integer model, for optimally deciding the FDI-outsourcing alternatives at the various stages of a global supply chain. We empirically analyze the proposed model by incorporating FTZs on an 8-stage supply chain.