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<p>We develop a trading framework in which a vertical multinational enterprise (MNE) produces final goods through an overseas unit in a host country, while competing with local rivals in both upstream and downstream markets. We compare two organizing structures for offshore manufacturing, centralization and decentralization, and derive several key results. First, regardless of the management structure, the MNE chooses to purchase rather than sell intermediate goods in the host country’s input market. Second, decentralization yields higher profits than centralization. Third, assuming a linear demand function, when the MNE’s upstream production is sufficiently efficient, decentralizing offshore manufacturing enhances welfare in the MNE’s home country, the host country, and globally.</p>

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Effective management structures for offshore manufacturing: centralization vs. decentralization

  • 期刊论文

  • 发表日期：

    2026年3月20日

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  • Micah Mainala,
  • Yan-Shu Lin,
  • Dang-Long Bui

摘要

We develop a trading framework in which a vertical multinational enterprise (MNE) produces final goods through an overseas unit in a host country, while competing with local rivals in both upstream and downstream markets. We compare two organizing structures for offshore manufacturing, centralization and decentralization, and derive several key results. First, regardless of the management structure, the MNE chooses to purchase rather than sell intermediate goods in the host country’s input market. Second, decentralization yields higher profits than centralization. Third, assuming a linear demand function, when the MNE’s upstream production is sufficiently efficient, decentralizing offshore manufacturing enhances welfare in the MNE’s home country, the host country, and globally.