Foreign direct investment or outsourcing: a supply chain decision model

Abstract

Strategically deciding between foreign direct investment (FDI) and outsourcing at the various stages of a global supply chain is a very challenging problem for the firm's manager. We model this strategic decision problem as a mixed integer nonlinear program (MINLP) with the assumption that the good flow is unidirectional, which means the production and distribution networks admit no reverse flow. The proposed model optimizes the overall supply chain costs by taking into account the production cost, the inventory holding cost at the various stages and the transportation cost between the stages. This model is referred as the base model. We also propose some extensions of the base model The behaviour of the base model is analyzed for a 8-stage, 4-echelon supply chain.