Real-time payment in cross-border operations considering local competition and tax-planning

Abstract

Real-time payment (RTP) enabled by FinTech is changing the cross-border B2B transactions that have frequently suffered from delay payment issues. In this paper, we study a supply chain where a multinational firm (MNF) produces products in its domestic manufacturing division and then sells them to overseas customers through both its retailing division and a local retailer. We investigate the supply chain parties' preferences for RTP by considering the trade-offs among the MNF's tax-planning, the cash opportunity cost, and the downstream competition between the MNF's retailing division and the local retailer. We find that the retailing division and the local retailer always have conflicts of interest facing RTP so their preferences cannot be aligned. For the MNF, interestingly, we find that RTP can be preferred even if the MNF's relative cash opportunity cost is large, depending on the tax disparity between its manufacturing and retailing divisions. We also find that tense local competition will motivate the MNF to prefer RTP, especially when the tax disparity is sufficiently small.