59 / 2024-04-18 09:56:51

Financing strategy and retailer entry in e-commerce supply chains with ESG effort

e-commerce supply chain; bank loans; trade credit; retailer entry; ESG effort

With the increasing importance of Environment, Society, and Governance (ESG) for social and business development, an increasing number of manufacturers are integrating ESG into their operational decision-making. We consider a supply chain where the manufacturer with ESG effort sells products through an incumbent e-commerce platform retailer and a capital-constrained offline retailer as new entrant. The offline retailer is enable to enter the market due to lack of capital (Situation 1) and can enter the market either through trade credit (Situation 2) or through bank loans (Situation 3). The interaction of financing strategies and new entry are explored. First, the conditions under which the manufacturer should provide financing to the new entrant retailer and the financing choice of the new entrant retailer between bank loans and trade credit are explored. The manufacturer would offer trade credit directly to the new entrant retailer if the cost coefficient is relatively high and the new entrant retailer prefers trade credit over bank loans when both financing mechanisms are available. Second, we discuss how the new entrant affects the ESG level, carbon emissions, social welfare and the profit of incumbent online platform retailer. The new entrant can be beneficial to social welfare if both cost coefficient and commission rate are relatively high. Interesting, we find that the new entrant does not always hurt the incumbent retailer and the new entry financed through bank loans can bring higher profits for the incumbent retailer than through trade credit. Finally, the results indicate that the equilibrium financing mechanism (trade credit) harms the incumbent retailer and the environment, but it can produce higher social welfare compared to bank loans when the offline retailer enters the market.