Supply Chain Finance, Performance and Risk: How Do SMEs Adjust Their Buyer-Supplier Relationship for Competitiveness?

Feng Liu,Mingjie Fang,Xuesheng Chen,Kwangtae Park

doi:10.7441/joc.2021.04.05

Abstract

Supply chain finance (SCF) has attracted considerable attention being an innovative business model that allows firms, especially small- and medium-sized enterprises (SMEs), to convert illiquid assets into cash without incurring additional liabilities. However, its effects on SME performance and risk have been insufficiently studied. The competitiveness of SMEs depends on performance enhancement and risk mitigation. Thus, this study constructs a scaled-decile rank transformation of account receivable turnover to gauge the degree to which a supplier implements SCF, thereby examining the relationship between SCF, performance, and risk. We collect data on 4,679 SMEs from the Chinese manufacturing sector. Thereafter, hierarchical linear regression, a complex form of multiple linear regression analysis, is employed to test the hypotheses. The results indicate that an SME’s SCF adoption positively impacts its performance but negatively impacts its risk. To further explore cross-sectional variability, we investigated the buyer-supplier relationship’s moderating role. Results show that an increase in customer concentration strengthens both the positive effects of SCF on performance and the negative effects of SCF on risk. Overall, our study contributes to the literature on the interface of operations and finance in supply chains by exploring the multiple facets of SCF adoption and highlighting the moderating role of buyer-supplier relationship in SCF and SME competitiveness. Finally, we provide managerial implications for SMEs and financial service providers by validating the value of SCF implementation and the buyer-supplier relationship management in forging competitive advantages.

Highlights

Maintaining liquidity to support sustainable operation for a competitive advantage has become a primary challenge in recent decades
The results indicate that the variance inflation factor (VIF) range from 1.03 to 4.68, which are much less than the criterion value of 10, suggesting that multicollinearity is not a serious issue for further analysis (Hair et al, 2009)
Our study builds on the supply chain finance (SCF) literature and considers the relationship between SCF, customer concentration, supplier performance, and credit risk

Summary

Introduction

Maintaining liquidity to support sustainable operation for a competitive advantage has become a primary challenge in recent decades. The credit crunch became widespread worldwide; a shortage of working capital has been a key operations dilemma for small- and medium-sized enterprises (SMEs). An alternative to traditional lending practices may be supply chain finance (SCF), a collaborative and innovative business model that provides credit and services for suppliers, especially SMEs, to convert illiquid assets into cash without creating additional liabilities (Zhu et al, 2019). Several studies have shown that implementing SCF improves operational performance by helping SMEs gain short-term financing, increasing working capital and revenue, and mitigating supply chain risk (Gong et al, 2018; Song et al, 2018; Wuttke et al, 2016; Wuttke et al, 2019). Early evidence is mainly based on case studies or operational research models, which raised the need for data-driven empirical evidence

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Results

Conclusion