PhD Proposal Defense – Three Essays on Tax-efficient Supply Chain Management and Public vs Private Service Competition

Research Interest
In recent decades, globalization enables many corporations expand their operations across different countries. Multinational firms’ (MNFs’) different divisions or subsidiaries are usually located in countries with different tax jurisdictions. It is therefore important to investigate the intricate interdependence between MNFs’ operational decision and tax considerations. Besides tax regulations, government sometimes will directly provide service, including public transport and health care, to citizens along with other privates firms. It is interesting to study the public vs private service competition and examine the impacts of public intervention.

In the first study, we investigate the impact of direct tax (corporate income tax) on MNFs’ operations decisions. We observe in practice that many MNFs supply inputs to those rival firms who may later on compete with their retailing subsidiaries in the downstream retail markets. Here we study how the MNF’s strategic selling-to-rival decisions would be influenced by the global tax disparity, whereby the MNF’s manufacturing and retailing subsidiaries reside in tax jurisdictions with distinct tax rates. We find that the extent of tax disparity can fundamentally influence the MNF’s selling-to-rival decision and also the selling price.

In the second study, we consider the impact of indirect tax (value-added tax or VAT) on a MNF’s procurement strategy in China. The MNF relies on a contract manufacturer (CM) to produce its products, which serve both markets within and outside China. The MNF will decide whether to control its component procurement (consignment strategy) or delegate that function to the CM (turnkey strategy). Our study indicates that the multi-market structure with different natures of competition, and VAT refund rules, have the potential of impacting the MNF’s choice of consignment vs turnkey strategies, sometimes in interesting ways.

In the third study, we investigate the public vs private service competition. In many countries, people are experiencing long waiting time for public service. One way to cope this problem is to allow private companies into the market to reduce the burden (e.g., healthcare and harbor tunnels in Hong Kong). We study the price competition between public and private servers, and find that the public vs private system may incur tremendous inefficiency. Interestingly, the social welfare from public vs private system can be even lower than the fully competitive counterpart. We also propose several remedies for such inefficiency.