Tax‐Effective Supply Chain Decisions Under China's Export‐Oriented Tax Policies

In this paper, we study the impacts of a set of China's export‐oriented tax and tariff rules on the optimal supply chain design and operations for a firm that produces its product in China and sells it in markets both inside and outside China. We develop an analytical framework to evaluate four major supply chain structures that we observed in practice. We derive the optimal supply chain decisions for each structure and investigate various business environments under which one of the structures is preferred over the others. Our analysis indicates that the ultimate purpose of a product sold in the China market (i.e., whether it will be consumed domestically or be assembled in another exported product) may have a significant impact on the structure preference. In addition, threshold values exist for several key business parameters over (or under) which certain supply chain structures are favored over others. Managerial insights based on such results are useful for multinational firms who are challenged to develop effective supply chain strategies in the region's increasingly volatile business environment.