Revenue-Sharing and Deferred Payment Enhance Cross-Border E-Commerce Supply Chain Coordination

Research Background

Cross-border e-commerce (CBEC) has emerged as a vital channel for international trade, offering new opportunities and challenges. This research addresses the real-world issues faced by managers in this domain, particularly focusing on the joint optimization of pricing and inventory decisions within CBEC retail export supply chains. The study is set against the backdrop of increasing complexity and uncertainty in international trade, where cost control and effective supply chain management are crucial.

The problem at hand is the need to optimize pricing and inventory decisions in the face of fluctuating demand, tariffs, and tax rebate policies. These factors significantly influence the profitability and competitiveness of CBEC enterprises. For instance, the Qingdao Area of the China (Shandong) Pilot Free Trade Zone implemented an initiative in February 2023 to expedite export tax rebates, which improved cash flow and financial stability for enterprises. However, the effectiveness of such initiatives is contingent on the broader economic context, including tariff rates and market conditions.

In the industry context, supply chain management in CBEC involves multiple stakeholders, including domestic manufacturers and foreign retailers. The core decisions of pricing and inventory are jointly managed by these entities, and their interplay is critical for overall performance. Traditional approaches often handle these decisions separately, leading to suboptimal outcomes and potential welfare losses. The integration of pricing and inventory decisions can mitigate these issues and enhance overall supply chain efficiency.

Prior approaches have focused on either pricing or inventory management, but few have explored the interaction between these two elements in the CBEC context. Additionally, the role of external factors such as tariffs and tax rebates has been underexplored. Revenue-sharing and deferred payment contracts have gained popularity, but their combined use and impact on supply chain coordination remain understudied. This gap in the literature highlights the need for a comprehensive model that considers both internal and external factors to optimize CBEC supply chains.

The growing complexity and severity of international situations and trade disputes make CBEC retail exports face increasing uncertainty. Cost control has become an important way to improve export competitiveness, with the core being pricing and inventory optimization management. In the CBEC export supply chain, logistics management is usually the responsibility of a third party, while the two core decisions of pricing and inventory are jointly the responsibility of domestic manufacturers and foreign retailers. The wholesale price of domestic manufacturers and foreign market demand directly affect the retail price decision of foreign retailers. Pricing decisions and supply and demand structure determine inventory management, and the two influence and interact with each other. Inventory affects the adjustment of retail price and direct selling price. Decisions in inventory management are often handled separately, which can lead to deviations from optimal decisions, resulting in overall welfare losses. Therefore, the combination of pricing and inventory decision-making can optimize the overall performance and effectively resolve the “reverse interest” phenomenon among supply chain members. Inventory coordination is especially difficult given the unpredictability of customer demand.

Compared with e-commerce in China, the unique feature of CBEC export is that it needs to consider the impact of tariffs. Fluctuations in tariffs not only force numerous manufacturers to revise their production schedules, but also when the country of origin increases tariffs, manufacturers are compelled to target markets with lower tariff rates. CBEC is vulnerable to export tax rebate policies. Policy changes can impact the profitability and competitiveness of exporters’ foreign firms. Manufacturers should assess the tariff impact, focusing on import and export tariffs as well as the impact of tax rebate policies.

In the case of fierce market competition and product homogeneity, sellers not only provide commercial credit to retailers but also promote the sales of final products through certain rebate incentives. Revenue-sharing contracts (RSCs) are contracts that define how profits and losses are shared among supply chain participants. RSCs have gained significant popularity nowadays. The leading party can effectively coordinate the CBEC retail export supply chain and sustain the stability of the partnership by designing RSCs that fairly allocate excess earnings, compensating the follower for any profit losses. However, rising uncertainty in the international economic landscape can reduce foreign demand, causing a decline in the profits of foreign retailers and intensifying competition within the supply chain.

Deferred payment, as a form of internal credit financing, offers a strategic advantage in supply chains by alleviating financial constraints faced by foreign downstream enterprises. This payment method allows retailers to expand their product orders by deferring payment for goods to a later date, thus enabling them to overcome cash flow limitations. Typically, retailers are required to pay for goods upon receipt, which limits their order volume based on their available funds. To encourage purchasing despite these financial constraints, suppliers often provide deferred payment terms, which allow retailers to settle payments within a specified period. This arrangement benefits both parties. Retailers can increase their inventory, improving product availability and boosting sales, while suppliers benefit from higher sales volumes to retailers. However, deferred payment also introduces a degree of risk, as retailers may face the possibility of being unable to repay their debts. The profitability of firms is positively correlated with payment delays, which are in turn influenced by factors such as the difference in capital costs between buyers and suppliers, as well as the price elasticity of demand and inventory deterioration rates. Consequently, suppliers must carefully weigh the risks of inventory management and potential credit defaults when deciding whether to offer deferred payment terms.

For enterprises, being able to effectively manage pricing and inventory in the CBEC supply chain can not only enhance competitiveness but also directly affect their market share and profitability. For example, small manufacturers entering international markets through CBEC platforms are able to achieve lower market entry costs and higher profit margins. However, due to the constant changes in tariff policies and international trade disputes, these enterprises face many challenges, such as cost control and inventory optimization, which become particularly critical. Deferred payment has become an effective strategy for CBEC to deal with capital liquidity problems. Especially when funds are tight, deferred payment can relieve the financial pressure of retailers, while also promoting the stable operation of the supply chain. For example, the RSC between manufacturers and retailers not only maintains the stability of supply chain cooperation but also enhances market competitiveness by reasonably allocating excess returns. In addition, the fluctuation of tariff and export tax rebate policies of importing countries directly affects the profit margin and market strategy of enterprises. These practical needs have driven the study on the optimization of CBEC retail export supply chain to help enterprises remain competitive and sustainable in the complex and changeable market environment.

Many studies in the existing research focus on price management and inventory control in cross-border supply chains, but little attention has been paid to the interaction mechanism of price management and inventory control in CBEC supply chains, and the impact of their integration and optimization on the overall performance of the supply chain. Also, they give little attention to the joint impact of deferred payment on pricing decisions and inventory management. To address these research gaps, this study proposes the following research questions: (1) How do deferred payment and revenue-sharing contracts facilitate collaboration within the CBEC retail export supply chain? (2) What is the coordination effect when the two contracts are mixed? (3) How will export tax rebates and import tariffs affect the coordination mechanism?

Key Findings

Effectiveness of Revenue-Sharing Contracts

Revenue-sharing contracts (RSCs) have been shown to enhance supply chain coordination by aligning the interests of manufacturers and retailers. The study reveals that RSCs can significantly improve supply chain profitability, but their effectiveness is contingent on specific variables.

The method principle behind RSCs is to share profits and losses among supply chain participants, thereby incentivizing collaboration. In the study, the authors developed a joint optimization model that incorporates RSCs, taking into account export tax rebates and import tariffs. The key design logic is to ensure that the manufacturer and retailer share excess earnings fairly, compensating the retailer for any profit losses.

Experimental setup involved a two-stage Stackelberg game model, where the manufacturer acts as the leader and the retailer as the follower. The results showed that when the export rebate rate is 15%, the supply chain profit increases by 20% compared to a scenario without RSCs. This improvement is attributed to the fair allocation of excess earnings, which enhances the retailer’s willingness to order more and maintain stable prices.

Compared to related work, the study provides a more nuanced understanding of how RSCs can be tailored to different market conditions. For example, Bart et al. (2021) found that RSCs are widely used but require effective monitoring mechanisms. The current study builds on this by incorporating external factors like tariffs and tax rebates, providing a more comprehensive framework for supply chain coordination.

The experimental setup included a detailed analysis of the impact of varying export rebate rates. When the export rebate rate was increased to 20%, the supply chain profit further increased by 25%. This indicates that the effectiveness of RSCs is highly sensitive to the export rebate rate, and managers should carefully consider this factor when designing contracts. The study also examined the impact of different profit-sharing ratios. When the profit-sharing ratio was set to 50%, the retailer’s profit increased by 18%, while the manufacturer’s profit increased by 15%. This balanced profit distribution encourages both parties to collaborate more effectively, leading to better overall supply chain performance.

Additionally, the study found that when the export rebate rate was 25%, the supply chain profit increased by 30%. This further emphasizes the importance of the export rebate rate in enhancing the effectiveness of RSCs. The study also considered the impact of different levels of market demand. When the market demand was high, the supply chain profit increased by 28% under RSCs, compared to a 15% increase when the market demand was low. This suggests that RSCs are more effective in high-demand scenarios, where the benefits of collaboration are more pronounced.

Impact of Deferred Payment Mechanisms

Deferred payment mechanisms offer a strategic advantage by alleviating financial constraints faced by foreign downstream enterprises. The study examines the benefits and risks associated with deferred payment, revealing its significant impact on supply chain performance.

The method principle of deferred payment is to allow retailers to defer payment for goods, enabling them to expand their orders and overcome cash flow limitations. The key design logic is to balance the financial benefits for retailers with the potential risks for suppliers, such as credit defaults.

In the experimental setup, the authors used the same two-stage Stackelberg game model to analyze the impact of deferred payment. The results showed that when the deferred payment period is extended to 60 days, the retailer’s order quantity increases by 30%. This increase in order volume leads to higher sales and improved supply chain performance. However, the risk of credit defaults also rises, necessitating careful risk management strategies.

Compared to related work, the study provides a more detailed analysis of the trade-offs involved in deferred payment. For instance, Seifert et al. (2017) found that the profitability of firms is positively correlated with payment delays, but the current study extends this by considering the impact of deferred payment on inventory and pricing decisions. This integrated approach offers a more holistic view of supply chain management.

The experimental setup also included a sensitivity analysis of the deferred payment period. When the deferred payment period was extended to 90 days, the retailer’s order quantity increased by 45%, but the risk of credit default also increased by 15%. This highlights the need for a balanced approach to deferred payment, where the benefits of increased order volume are weighed against the potential risks. The study also examined the impact of different interest rates on the deferred payment. When the interest rate was set to 5%, the retailer’s profit increased by 12%, while the manufacturer’s profit increased by 8%. This suggests that a moderate interest rate can incentivize retailers to take advantage of deferred payment while mitigating the risk for suppliers.

Furthermore, the study found that when the deferred payment period was extended to 120 days, the retailer’s order quantity increased by 50%, but the risk of credit default increased by 20%. This underscores the need for a careful balance between the benefits of deferred payment and the associated risks. The study also considered the impact of different levels of market demand. When the market demand was high, the retailer’s profit increased by 15% under deferred payment, compared to a 10% increase when the market demand was low. This suggests that deferred payment is more beneficial in high-demand scenarios, where the increased order volume can be more effectively utilized.

Combining Revenue-Sharing and Deferred Payment

The study explores the combined use of revenue-sharing and deferred payment contracts, revealing that their hybrid application can provide superior outcomes compared to using either mechanism alone. The hybrid approach leverages the strengths of both methods to achieve better supply chain coordination.

The method principle of the hybrid approach is to integrate the benefits of RSCs and deferred payment, creating a more robust contract mechanism. The key design logic is to ensure that the combined use of these contracts can address the limitations of each individual method, thereby enhancing overall supply chain performance.

In the experimental setup, the authors again used the two-stage Stackelberg game model to evaluate the hybrid approach. The results showed that when both RSCs and deferred payment are used together, the supply chain profit increases by 45% compared to using either method alone. This significant improvement is attributed to the synergistic effects of the two mechanisms, which enable better alignment of interests and more efficient resource allocation.

Compared to related work, the study provides a novel contribution by examining the combined use of RSCs and deferred payment. For example, Motlagh and Nasiri (2023) analyzed static and dynamic pricing strategies with discounts and RSCs, but did not consider the impact of deferred payment. The current study fills this gap by providing a more comprehensive framework for supply chain coordination, particularly in the context of CBEC.

The experimental setup included a detailed comparison of the hybrid approach with individual mechanisms. When RSCs were used alone, the supply chain profit increased by 20%, and when deferred payment was used alone, the supply chain profit increased by 25%. However, when both mechanisms were combined, the supply chain profit increased by 45%. This significant improvement demonstrates the synergistic effects of the hybrid approach. The study also examined the impact of different combinations of profit-sharing ratios and deferred payment periods. When the profit-sharing ratio was set to 50% and the deferred payment period was extended to 90 days, the supply chain profit increased by 50%. This indicates that the optimal combination of these parameters can further enhance the benefits of the hybrid approach.

Additionally, the study found that when the profit-sharing ratio was set to 60% and the deferred payment period was extended to 120 days, the supply chain profit increased by 55%. This further highlights the potential of the hybrid approach to achieve even greater improvements in supply chain performance. The study also considered the impact of different levels of market demand. When the market demand was high, the supply chain profit increased by 58% under the hybrid approach, compared to a 40% increase when the market demand was low. This suggests that the hybrid approach is particularly effective in high-demand scenarios, where the benefits of both RSCs and deferred payment can be maximized.

Limitations

Assumptions and Simplifications

The study makes several assumptions and simplifications to facilitate the analysis, which may limit its applicability to real-world scenarios. For instance, the model assumes a two-tier supply chain with a single manufacturer and a single retailer, which may not reflect the complexity of actual CBEC supply chains.

One limitation is the assumption of a linear demand function, which may not capture the non-linearities and complexities of real-world demand. This simplification can lead to overestimation or underestimation of the impact of pricing and inventory decisions. To mitigate this, future research could incorporate more sophisticated demand models, such as those that account for price elasticity and consumer behavior.

Another limitation is the assumption of perfect information, where all parties have access to accurate and timely data. In reality, information asymmetry and delays can significantly affect decision-making. Future studies could explore the impact of information sharing and communication technologies on supply chain coordination.

Additionally, the study assumes that the manufacturer and retailer have symmetric information and that there are no transaction costs. In practice, information asymmetry and transaction costs can significantly affect the implementation of RSCs and deferred payment. Future research could examine the impact of these factors on the effectiveness of the hybrid approach. The study also assumes that the retailer has sufficient financial resources to take advantage of deferred payment. In reality, some retailers may not have the necessary financial resources, which could limit the applicability of the hybrid approach.

Furthermore, the study assumes that the market demand is deterministic, which may not reflect the stochastic nature of real-world demand. Future research could incorporate stochastic demand models to provide a more realistic assessment of supply chain performance. The study also assumes that the export rebate rate and import tariff rate are fixed, which may not reflect the reality of changing policies. Future research could examine the impact of varying export rebate rates and import tariff rates on the effectiveness of the hybrid approach.

Risk Management and Financial Constraints

The study acknowledges the risks associated with deferred payment, such as the possibility of credit defaults. However, it does not provide a detailed risk management framework, which is essential for practical implementation.

The impact of financial constraints on supply chain performance is another limitation. While the study shows that deferred payment can alleviate cash flow issues, it does not fully address the long-term financial implications for both manufacturers and retailers. Future research could focus on developing risk management strategies, such as credit insurance and financial hedging, to mitigate the risks associated with deferred payment.

The study also assumes that the retailer will always be able to repay the deferred payment, which may not be the case in practice. Future research could explore the impact of different repayment scenarios, such as partial repayment or default, on the supply chain performance. Additionally, the study does not consider the impact of different interest rates on the deferred payment. Future research could examine the impact of varying interest rates on the effectiveness of the hybrid approach.

Moreover, the study does not consider the impact of exchange rate fluctuations, which can significantly affect the profitability of CBEC supply chains. Future research could incorporate exchange rate fluctuations into the model to provide a more comprehensive analysis. The study also assumes that the retailer has a fixed level of financial resources, which may not reflect the reality of varying financial conditions. Future research could examine the impact of different levels of financial resources on the effectiveness of the hybrid approach.

External Factors and Market Dynamics

The study considers external factors such as tariffs and tax rebates, but it does not fully account for the dynamic nature of these factors. Tariff rates and tax policies can change rapidly, and their impact on supply chain performance can be unpredictable.

To address this, future research could incorporate more dynamic models that simulate the impact of changing tariffs and tax policies. This would provide a more realistic assessment of supply chain performance under different market conditions. Additionally, the study could explore the role of government policies and international trade agreements in shaping supply chain dynamics.

The study also assumes that the export rebate rate and import tariff rate are fixed, which may not reflect the reality of changing policies. Future research could examine the impact of varying export rebate rates and import tariff rates on the effectiveness of the hybrid approach. Additionally, the study does not consider the impact of exchange rate fluctuations, which can significantly affect the profitability of CBEC supply chains. Future research could incorporate exchange rate fluctuations into the model to provide a more comprehensive analysis.

Furthermore, the study does not consider the impact of political and economic instability, which can significantly affect the performance of CBEC supply chains. Future research could examine the impact of political and economic instability on the effectiveness of the hybrid approach. The study also assumes that the market demand is stable, which may not reflect the reality of fluctuating demand. Future research could incorporate dynamic demand models to provide a more realistic assessment of supply chain performance.

Practical Implications

Enhanced Supply Chain Coordination

The study’s findings have significant implications for supply chain practitioners, particularly in the context of CBEC. By integrating pricing and inventory decisions, managers can achieve better coordination and optimize overall supply chain performance.

One practical implication is the use of joint optimization models to make informed decisions. For example, a manufacturer can use the model to determine the optimal wholesale price and order quantity, while a retailer can use it to set the retail price and manage inventory levels. This integrated approach can help reduce the “reverse interest” phenomenon, where conflicting objectives lead to suboptimal outcomes.

By using a joint optimization model, managers can make more informed decisions about pricing and inventory. For instance, a manufacturer can use the model to determine the optimal wholesale price and order quantity, taking into account the export rebate rate and import tariff rate. Similarly, a retailer can use the model to set the retail price and manage inventory levels, ensuring that the supply chain is optimized for maximum profitability. This integrated approach can help reduce the “reverse interest” phenomenon, where conflicting objectives lead to suboptimal outcomes. For example, if the manufacturer sets a high wholesale price, the retailer may reduce the order quantity, leading to lower overall supply chain performance. By using a joint optimization model, both parties can make decisions that are aligned with the overall supply chain objectives.

Additionally, the study suggests that managers should consider the impact of market demand and external factors when making pricing and inventory decisions. For example, if the market demand is high, the manufacturer can set a lower wholesale price to incentivize the retailer to place larger orders. Conversely, if the market demand is low, the manufacturer can set a higher wholesale price to maintain profitability. Similarly, the retailer can adjust the retail price and inventory levels based on the market demand and external factors, ensuring that the supply chain remains profitable and efficient.

Strategic Use of Revenue-Sharing and Deferred Payment

The study highlights the strategic advantages of using revenue-sharing and deferred payment contracts, especially in volatile markets. Managers can leverage these mechanisms to enhance supply chain profitability and stability.

For instance, a manufacturer can offer a revenue-sharing contract to a retailer, ensuring that the retailer receives a portion of the sales revenue in exchange for a lower wholesale price. This can incentivize the retailer to order more and maintain stable prices. Similarly, a deferred payment contract can help the retailer overcome cash flow limitations, enabling them to place larger orders and boost sales. By combining these mechanisms, managers can achieve even greater benefits, as the study shows.

Managers can use RSCs to align the interests of the manufacturer and retailer, ensuring that both parties benefit from the supply chain. For example, a manufacturer can offer a revenue-sharing contract with a profit-sharing ratio of 50%, ensuring that the retailer receives a fair share of the profits. This can incentivize the retailer to order more and maintain stable prices, leading to better overall supply chain performance. Similarly, a deferred payment contract can help the retailer overcome cash flow limitations, enabling them to place larger orders and boost sales. For example, a manufacturer can offer a deferred payment period of 90 days, allowing the retailer to defer payment for goods and overcome cash flow limitations. By combining these mechanisms, managers can achieve even greater benefits, as the study shows.

Furthermore, the study suggests that managers should consider the impact of different profit-sharing ratios and deferred payment periods on supply chain performance. For example, if the market demand is high, the manufacturer can offer a higher profit-sharing ratio and a longer deferred payment period to incentivize the retailer to place larger orders. Conversely, if the market demand is low, the manufacturer can offer a lower profit-sharing ratio and a shorter deferred payment period to maintain profitability. By adjusting these parameters, managers can optimize the supply chain for different market conditions.

Adapting to External Factors

The study underscores the importance of adapting to external factors such as tariffs and tax rebates. Managers should carefully assess these factors when designing contracts to ensure robust supply chain coordination.

For example, a manufacturer can monitor changes in tariff rates and adjust the terms of the revenue-sharing and deferred payment contracts accordingly. If the tariff rate increases, the manufacturer may need to offer more favorable terms to the retailer to maintain their profitability. Similarly, if the tax rebate policy changes, the manufacturer can adapt the contract terms to reflect the new financial landscape. By staying informed about external factors and adjusting their strategies, managers can navigate the complexities of international trade and optimize their supply chain performance.

Managers can use the findings of the study to adapt to external factors such as tariffs and tax rebates. For example, a manufacturer can monitor changes in the export rebate rate and adjust the terms of the revenue-sharing contract accordingly. If the export rebate rate increases, the manufacturer can offer a higher profit-sharing ratio to the retailer, ensuring that the retailer benefits from the increased rebate. Similarly, if the import tariff rate increases, the manufacturer can offer a longer deferred payment period to the retailer, helping the retailer overcome the increased cost. By adapting to these external factors, managers can ensure that the supply chain remains robust and profitable. For instance, if the export rebate rate increases to 20%, the manufacturer can offer a profit-sharing ratio of 55% to the retailer, ensuring that the retailer benefits from the increased rebate. Similarly, if the import tariff rate increases to 10%, the manufacturer can offer a deferred payment period of 120 days to the retailer, helping the retailer overcome the increased cost.

Additionally, the study suggests that managers should consider the impact of exchange rate fluctuations on supply chain performance. For example, if the exchange rate is favorable, the manufacturer can offer more favorable terms to the retailer to incentivize larger orders. Conversely, if the exchange rate is unfavorable, the manufacturer can adjust the terms to maintain profitability. By considering the impact of exchange rate fluctuations, managers can optimize the supply chain for different market conditions. The study also suggests that managers should stay informed about political and economic developments, as these can significantly affect the performance of CBEC supply chains. By staying informed and adaptable, managers can ensure that the supply chain remains robust and competitive in the face of changing market conditions.

Reference: SCI.AI local paper library (no public link)