Bridging the Green Gap : The Role of Distributed Manufacturing in a Multinational Firm’s Emission Reduction and Order Quantity Decisions

Multinational firms (MNFs) that outsource production in the developing countries have been identified as the main contributors to greenhouse gas (GHG) emissions. These MNFs are therefore required to uphold sustainability goals, which propels the manufacturers in developing countries to make strides toward sustainability. In practice, we also observe many MNFs that adopt the distributed manufacturing strategy by relying on an overseas green manufacturer for the developed market orders and a local manufacturer requiring GHG emission reduction for the developing market orders. We formulate the key tradeoffs in the MNF’s manufacturing decisions in a two-market-local-competition model and reveal that the MNF’s decisions are shaped by the GHG emission difference between distributed manufacturing and common manufacturing strategies, the unit initial GHG emissions in the developing countries and the MNF’s developed market potential. The distributed manufacturing strategy is beneficial for the MNFs when the developed market is medium-sized and the manufacturer in the developing countries has high initial GHG emissions, indicating a heavy reduction task. We identify an interesting paradox that a larger market potential does not necessarily lead to more environmental pollution. On the contrary, it can stimulate the manufacturer in the developing countries to invest more in GHG emission reduction. Our research discovers triple-win situations under the MNF’s distributed manufacturing strategy, so it sheds light on the green-minded MNFs' manufacturing decisions in reducing GHG emissions, balancing the profit gains from the developed and developing markets, and coordinating the environmental and economic sustainability