Impact of Channel Co-opetition and Taxes on a Multinational Firm's Resilient Local Production Decision.

This article examines how national culture influences a multinational firm’s (MNF’s) production strategy choice between local production (LP) and overseas production (OP) in emerging markets, focusing on the interplay of factory establishment costs, tax disparity, and channel substitutability—the degree of competition between the MNF’s direct retail channel and local retailers. Using a game-theoretical co-opetitive supply chain model, the study finds that when factory establishment costs are low, MNFs prefer LP, benefiting from centralized control and tax advantages; with moderate fixed costs, preference shifts depending on channel substitutability, favoring LP when substitutability is low or high, and OP otherwise. High fixed costs make tax disparity a critical factor, with MNFs favoring LP only under certain combinations of tax disparity and channel substitutability. The research highlights that national-culture-driven government policies, such as tax incentives and cost subsidies, can influence MNF decisions but may not always effectively promote local manufacturing or consumer benefits, especially when channel competition is intense. Extensions considering import tariffs confirm these dynamics, offering insights for policymakers and MNFs navigating cultural and regulatory environments in global production decisions.