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The Impact Of Local Content Rules On Global Sourcing Decisions

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  • CHARLES L. MUNSON
  • MEIR J. ROSENBLATT

Abstract

Many governments have established, for various reasons, local confent purchasing rules for companies that wish to operate in their country. These requirements force firms to purchase a certain amount of components from suppliers located in that country. This paper describes local content rules and develops models to select suppliers while satisfying local content provisions. The single plant model can be transformed into a knapsack problem that is solved by a ranking procedure, and the solution provides insight as to the manner in which local content rules impact more generalized models. Furthermore, we illustrate possible negative effects to local industry that may result when governments set the local content percentage too high, and we discuss methods for companies to circumvent local content rules. Finally, we address the issue of local content rules in the context of multi‐plant global sourcing decisions, and we provide an efficient solution procedure for the classical plant location model extended to include local content rules at each site

Suggested Citation

  • Charles L. Munson & Meir J. Rosenblatt, 1997. "The Impact Of Local Content Rules On Global Sourcing Decisions," Production and Operations Management, Production and Operations Management Society, vol. 6(3), pages 277-290, September.
    • Handle: RePEc:bla:popmgt:v:6:y:1997:i:3:p:277-290
    DOI: 10.1111/j.1937-5956.1997.tb00431.x
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    2. Wenqiang Xiao & Vernon N. Hsu & Qiaohai (Joice) Hu, 2015. "Manufacturing Capacity Decisions with Demand Uncertainty and Tax Cross-Crediting," Manufacturing & Service Operations Management, INFORMS, vol. 17(3), pages 384-398, July.
    3. Lorentz, Harri & Kumar, Mukesh & Srai, Jagjit Singh, 2018. "Managing distance in international purchasing and supply: a systematic review of literature from the resource-based view perspective," International Business Review, Elsevier, vol. 27(2), pages 339-354.
    4. Guoming Lai & Yixuan Liu & Wenqiang Xiao, 2021. "International Taxation and Production Outsourcing," Production and Operations Management, Production and Operations Management Society, vol. 30(2), pages 402-418, February.
    5. Vernon N. Hsu & Kaijie Zhu, 2011. "Tax-Effective Supply Chain Decisions Under China's Export-Oriented Tax Policies," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 163-179, November.
    6. Zhen, Lu, 2014. "A three-stage optimization model for production and outsourcing under China’s export-oriented tax policies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 69(C), pages 1-20.
    7. Shiliang Cui & Lauren Xiaoyuan Lu, 2019. "Optimizing Local Content Requirements Under Technology Gaps," Service Science, INFORMS, vol. 21(1), pages 213-230, January.
    8. Mariel, Katharina & Minner, Stefan, 2017. "Benders decomposition for a strategic network design problem under NAFTA local content requirements," Omega, Elsevier, vol. 68(C), pages 62-75.
    9. Avittathur, Balram & Shah, Janat & Gupta, Omprakash K., 2005. "Distribution centre location modelling for differential sales tax structure," European Journal of Operational Research, Elsevier, vol. 162(1), pages 191-205, April.
    10. van der Loos, Adriaan & Langeveld, Rowan & Hekkert, Marko & Negro, Simona & Truffer, Bernhard, 2022. "Developing local industries and global value chains: The case of offshore wind," Technological Forecasting and Social Change, Elsevier, vol. 174(C).
    11. Lauren Xiaoyuan Lu & Jan A. Van Mieghem, 2009. "Multimarket Facility Network Design with Offshoring Applications," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 90-108, October.

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