Exploring blockchain technology in international trade

Abstract

Purpose The purpose of this paper is to explore the applicability of blockchain technology in international trade process from a perspective of letter of credit payment. Design/methodology/approach A blockchain-based re-engineering process is designed by employing the blockchain and its affiliated smart contract technology to harvest the benefits of distributed ledger and distributed business workflow automation. Findings Comparative analysis and feasibility study were conducted to identify and validate the prospects, in terms of facilitating process flow and enhancing overall trade performance, of the proposed blockchain-based international trade process model. Practical implications Traditional trade processes suffer from a great number of issues about intermediaries, information latency and trust, which, in turn, hinder overall process efficiency. The emerging blockchain technology may have potentials to mitigate those issues by revolutionizing business processes across enterprise borders in various industries. Originality/value This study contributes to the conceptual design of a blockchain- and smart-contract-based process along with a provision of practical case in business process re-engineering. Further endeavors devoted to blockchain research and application across different sectors are suggested to reach better performance of business process operations.

A Systematic Review of Blockchain Literature in Logistics and Supply Chain Management: Identifying Research Questions and Future Directions

“…Agency theory posits that the interests of owners and managerial agents routinely diverge, and that managers can use the inherent information asymmetry to inflict agency costs to a firm [27,28] (1) Blockchain can help enhance trade contract efficiency and harmonize conflicting goals [29] (2) Agency theory was used to examine opportunistic behavior and asymmetry in the distribution of information between the agent and the principal entail agency costs in a blockchain system [30] (3) Agency mechanisms as useful to complement or substitute transactional and relational approaches in blockchain scenarios [31] What incentives drive blockchain applications? How does blockchain affect the relation between principal and agent?…”

“…Cole, Stevenson and Aitken [31] argue that agency mechanisms are useful to complement or substitute transactional and relational approaches in blockchain scenarios. Chang, Chen and Wu [29] used agency theory to investigate how blockchain can help enhance trade contract efficiency, and harmonize conflicting goals. Principal-agency theory was used by Beck et al [51] to examine governance dimensions through a blockchain setup, with coordinated incentives enabling agents to select their own behavior, but prompt to select actions that correspond with the system design goals.…”

“…Ahluwalia et al [65] discuss how blockchain can help startups to deal with their financing issues from a transaction cost perspective, and thereby build a model to prove the effectiveness of blockchain technology for this application. Using smart contracts, Murray, Kuban, Josefy and Anderson [46] investigated how blockchain alters transaction costs and affects firm boundaries, while Chang, Chen and Wu [29] showed that blockchain-based systems can also reduce opportunistic behavior from both trading parties, since verifiable smart contracts are immutably recorded on the blockchain.…”

Blockchain-Enabled Trade Finance Innovation: A Potential Paradigm Shift on Using Letter of Credit

“…The traditional L/C, as a kind of documentary credit, is comparatively secure to other payment methods, but processing it is complex and time-consuming. Multiple participants doing cross-border business with unfamiliar counterparties may cause communication and coordination difficulties that result in high costs and poor user experiences [10]. The difficulty of document and information transmission has jeopardized the widespread adoption of L/C [11,12].…”

“…When compared with the heavy use of paper contracts and trade documents in global trade, a smart contract deployed on the blockchain provides a seamless solution that may prevent tampering and counterfeiting. Traditional L/C processes rely heavily on centralized business operations, whereas the integration of the smart contract and the blockchain into trade processes mitigates issues such as counterfeiting and malicious alteration [10].…”