Technology outage risk and independent research and development investment decision in global supply chains

Abstract

Under the new global situation of the world pattern, the global industrial chain and supply chain are being reconstructed, and the safe and stable operation is facing a large number of risks and challenges. As the internal driving force of the reconstruction of the global supply chain, key core technologies have become an important part of world economic competition. This paper addresses the issue that what product manufacturer should do to prevent the risk of key core technology outage in the context of international competition. This paper first constructs a duopoly Hotelling model of two competitive products from two countries and the game models under different circumstances where enterprises in the core technology outage whether or not implement the independent research and development (IR&D). We establish four scenarios: non-IR&D benchmark before and after technology outage, IR&D before and after technology outage. Furthermore, outage risk is evaluated by comparing the impact of outage initiated by the government on the profit change of the initiator country firms and the firm in which supply is cut off. When the enterprises in technology outage implement IR&D, we compare the scale of profit changes of enterprises between the two countries and analyze the effectiveness of IR&D investment of enterprises in the country suffering from technology outage to cope with the technology outage risk. Our analysis indicates that: outage maybe make the country that initiates the core technology outage lose more profits and the core technology country’s profit change may be bigger than the country investing IR&D. Moreover, the enterprise’s IR&D investment can establish certain game space and rights for their country. When the country can reduce technological disadvantages, IR&D strategy, to some extent, can reduce the urgency due to the technology outage risk and weaken the absolute control from the rival country that initiates the technology outage.