Outsourcing remanufacturing and collecting strategies analysis with information asymmetry

Highlights

• Evolutionary strategies of outsourcing remanufacturing and collecting are provided.

• The interaction between outsourcing remanufacturing and collecting is revealed.

• The impact of cost misreporting and its optimal decision-making are explored.

• Insights are provided by integrating economic, social and environmental factors.

• A strategy of inducing information sharing is proposed.

Abstract

Outsourcing remanufacturing as a strategy for original equipment manufacturers (OEMs) to implement extended producer responsibility policy has become an important research problem. Considering information asymmetry caused by a third-party remanufacturer (3PR) misreporting remanufacturing production cost, this paper examines outsourcing collecting strategy through evolutionary game approach, and further obtains the long-term outsourcing remanufacturing strategy. The remanufacturing modes explored include in-house (OEM) and outsourcing (3PR) remanufacturing. The collecting modes explored include in-house (OEM), outsourcing (3PR) and secondary outsourcing (third-party collector, 3PC) collecting. Moreover, this paper provides optimal decision-making based on misreporting and further discusses the impact of information asymmetry on outsourcing strategy. Meanwhile, this paper proposes a series of insights of long-term strategy by integrating the dimensions of economy, society and environment. Finally, an information sharing strategy to deal with 3PR misreporting is further analyzed. The major conclusions indicate that under outsourcing remanufacturing with OEM collecting, the 3PR prefers to misreport the remanufacturing production cost information downward, which will lead to a result that information asymmetry is beneficial to both OEM and 3PR. However, misreporting in other collecting modes is only beneficial for 3PR. The evolutionary stability strategy of collecting depends on the difficulty of collecting and whether the information is symmetrical, which also affects outsourcing remanufacturing strategy. Under a certain condition, Pareto improvement in economic, social and environmental dimensions can be achieved by the information sharing strategy.

Introduction

With the deterioration of global environmental problems and the enhancement of sustainable development consensus, the policy of extended producer responsibility (EPR) is constantly tightening, which promotes the extension of producer responsibility to the full life cycle of products (Gui et al., 2016, Huang et al., 2019). Outsourcing remanufacturing is a strategy for original equipment manufacturers (OEMs) to implement the EPR policy. Its essence is that OEMs entrust remanufacturing projects to third-party remanufacturers (3PRs) at a certain outsourcing fee. In practice, if an OEM is constrained by remanufacturing processes or has higher remanufacturing production costs, outsourcing remanufacturing will become a common response strategy (Zou et al., 2016). For an early successful example, Caterpillar, with its excellent remanufacturing process, became Land Rover’s remanufacturing service provider in 2005 (The auto channel, 2005). Another recent example is Apple’s expansion of its global trade-in program by outsourcing remanufacturing to Foxconn (China daily, 2015). The advantage of outsourcing is that enterprises can focus on their core competitiveness (Tsay et al., 2018). In addition, remanufacturing of waste products is usually energy efficient, because it uses less raw materials and has lower environmental effect (Ding et al., 2020, Dou and Cao, 2020). In terms of disadvantage, however, due to the existence of technical barriers, the production cost information asymmetry in outsourcing remanufacturing makes OEM in an unfavorable condition of information. The direct cause of this asymmetry in cost information comes from the misrepresentation of private cost information by 3PR (Yan et al., 2016). Moreover, overseas outsourcing similar to Apple will exacerbate information asymmetry, which will greatly reduce the economic benefits from outsourcing and even hinder trade globalization (Shao et al., 2020). Information asymmetry of remanufacturing production cost makes enterprises unable to accurately evaluate the benefits of outsourcing remanufacturing. In response to this problem, this paper proposes an operation strategy of outsourcing remanufacturing, and provides an induced subsidy strategy to eliminate information asymmetry.

Closely related to outsourcing remanufacturing is the collecting of waste products from consumers. The difficulty of collecting waste products affects the subsequent operation of product remanufacturing (Kushwaha et al., 2020). Some OEMs, such as Sun Microsystem and Kodak, protect the sales of new products through controlling the reverse channel to reduce 3PR’s available core for remanufacturing (Örsdemir et al., 2014, Yan et al., 2018). Based on this concept, an OEM who outsources remanufacturing to 3PR may prefer to control collecting operations by himself. On the other hand, some OEMs also hold an open attitude towards collecting work, and they outsource collecting to 3PRs along with remanufacturing. Then, it becomes another possibility that a 3PR focused on remanufacturing outsources collecting to another third party collector (3PC). Some cases about collected by remanufacturer and third party can refer to the practice of Xerox Corporation and GENCO Distribution System (Savaskan et al., 2004, Xerox, 2019). In this paper, a long-term perspective to explore the outsourcing collecting channel selection strategy under outsourcing remanufacturing. The approach of evolutionary game simulates the repeated game of participants, which can solve this problem from a farsighted viewpoint (da Silva Rocha and Salomão, 2019, Kang et al., 2019, Mahmoudi and Rasti-Barzoki, 2018).

Overall, the main purpose of this paper is to provide long-term decision support on outsourcing remanufacturing and outsourcing collecting for related enterprises under information asymmetry of remanufacturing production cost. The remanufacturing modes explored include in-house (OEM) and outsourcing (3PR) remanufacturing. The collecting modes explored include in-house (OEM), outsourcing (3PR) and secondary outsourcing (3PC) collecting. Specifically, the following questions are the research focus of this paper. (1) What are the long-term stable strategies of outsourcing remanufacturing and collecting for related enterprises? (2) How does the effect of information asymmetry of remanufacturing production cost under outsourcing remanufacturing? (3) Which outsourcing remanufacturing and collecting strategy is more suitable for enterprises to implement EPR from the social and environmental dimensions? and whether there is a strategy based on information symmetry that can improve the economic, social and environmental performance of enterprises?

The major contribution of this paper is providing outsourcing remanufacturing and collecting strategy for OEM, 3PR and 3PC under the information asymmetry owed to 3PR misreporting remanufacturing cost. To our knowledge, there have been a small amount of investigations on the operational management of outsourcing remanufacturing, while fewer of them consider the impact of information asymmetry of cost on outsourcing remanufacturing strategy. In this paper, we reveal the impact of information asymmetry on outsourcing collecting strategy, and provide the optimal decisions with misreporting under the framework of outsourcing remanufacturing. Then we explore the long-term stable outsourcing strategy based on asymmetric evolutionary game, which is different from previous studies and provides some new insights. We also provide an optimal range of subsidy to induce the 3PR sharing real information with the OEM, which can achieve Pareto improvement in economic, social and environmental dimensions under a certain condition.

The overview of this paper is structured as follows. Section 2 reviews a series of related work. Then, Section 3 refines, assumes and models our problems. Based on Stackelberg game theory, Section 4 solves the equilibrium value of the models with and without information asymmetry. In Section 5, the equilibrium values of the models are analyzed, and the evolutionary stability strategy about collecting is analyzed based on evolutionary game theory. Section 6 further discusses our problems from social and environmental perspectives, and proposes an information acquisition strategy. Finally, Section 7 summarizes the conclusions and insights of this paper, and explores future research directions. The Appendix provides all mathematical proofs.