Financing strategies for a capital‐constrained manufacturer in a dual‐channel supply chain

Abstract

This study investigates a co-opetition-type dual-channel supply chain that consists of a competitive supplier (CS) and a capital-constrained manufacturer (CCM). The CCM procures key components from and simultaneously competes with the CS in the consumer market. To address the CCM's capital constraint, we consider three financing strategies, namely, trade credit, bank loan, and hybrid financing (i.e., combined use of bank loan and equity financing). Game models are established to characterize the interactions between the CS and CCM. The corresponding equilibria are derived under each strategy. Then, comparative analyses are conducted, and the CS's and CCM's preference structures regarding the three strategies are revealed. On this basis, the equilibrium strategy can be concluded as either trade credit or hybrid financing, but never bank loan. Specifically, when the equity financing ratio is small or large, trade credit is an equilibrium strategy. When the equity financing ratio is medium, the equilibrium strategy between trade credit and hybrid financing is determined by consumers' product preference and loan interest rate.accounted for a combined shipping volume of over 533 million units in 2017. This value is equivalent to 36.3% of the global smartphone market. 2 Although the two companies are in fierce competition in their industry, they cooperate with each other in many areas. 3 Notably, Samsung has provided Apple with processors and OLED screens for many years. 4 Such "co-opetition" is prevalent in many high-technology industries. Other typical examples are IBM and Cisco. The former purchases network equipment from the latter, while simultaneously competing in the overall server market. 5 The dual-channel supply chain, in which a supplier provides a manufacturer with key components while the two companies compete with each other in the final market, is common in real businesses. However, in practice, certain manufacturers in such dual-channel supply chains may lack capital to support production. For example, the smartphone screens used by Gionee, a well-known smartphone manufacturer in China, have always been provided by Foxconn. However, in recent years, Gionee has encountered capital-shortage problems and sought financing instruments to support its production. Consequently, one of the critical challenges for Gionee is selecting a suitable financing strategy.Accordingly, we extend the current literature by examining a co-opetition-type dual-channel supply chain, which consists of a competitive supplier (CS) and a capital-constrained manufacturer (CCM). The two firms are cooperative in component supply but competitive in the consumer market. Specifically, the CCM procures components from the CS. Meanwhile, the two companies compete by selling substitutable products in the same consumer market. For the capital constraint of the CCM, we consider three financing strategies. In Strategy 1 (trade credit), the CS offers trade credit to the CCM. In Strategy 2 (bank loan), the CCM seeks a bank loan to support its ...

Trade credit insurance in a capital‐constrained supply chain

“…The rapidly growing research on supply chain management and financing explores the interrelationship between firms' operating and financial decisions (e.g., Buzacott and Zhang, ; Li and Gu, ; Li et al., ; Qin et al., ). Three strands of research are related to our study: trade credit insurance, operations management with trade credit, and multiple retailers' competition.…”

“…The application condition of trade credit, bank financing, and hybrid financing in a coopetition‐type dual‐channel supply chain is investigated by Li et al. (). By introducing buyer intermediation into supplier financing, Tunca and Zhu () observe that buyer‐intermediated financing improves channel performance and benefits participants in a supply chain.…”

Editorial to the Special Issue onOperations Research Models for Supply Chain Finance

“…In this special issue, Li et al. (2020a) explore the optimal financing policies for a dual‐channel supply chain system with trade credit considerations. The authors consider the case when the manufacturer is “capital‐constrained.” The authors examine three policies, namely the “trade credit” (TC) policy, the “bank loan” (BL) policy, and a mix (MX policy) of them.…”

How does a bank's involvement interplay with a firm's capacity investment? An analysis and comparison of different consortium structures

“…The topic of financing as value‐added terms offered within supply chain members toward their upstream or downstream counterparts has also been addressed. Some studies have considered trade credit, guarantee, or equity investment offered by the seller to mitigate the buyer's financial constraints and to share market risk (Li et al., 2020; Li and Jiang, 2020; Qin et al., 2020; Yan et al., 2019); and others have considered advance selling prior to production or delivery of the product offered by the buyer to the seller (Gupta and Chutani, 2020; Shen et al., 2020). Kouvelis and Zhao (2015) investigated a scenario in which both supplier and retailer seek external financing and examined the contracts that could coordinate the channel.…”