Peer‐to‐peer financing choice of SME entrepreneurs in the re‐emergence of supply chain localization

• Author: Ashkan Hafezalkotob,Sobhan Asian,Allan N. Zhang,Raziyeh Reza‐Gharehbagh,Ahmad Makui
• DOI: http://doi.org/10.1111/itor.12715
• Date: 01 September 2020
• Published date: 01 September 2020

Intl. Trans. in Op. Res. 27 (2020) 2534–2558

DOI: 10.1111/itor.12715

INTERNATIONAL

TRANSACTIONS

IN OPERATIONAL

RESEARCH

Peer-to-peer financing choice of SME entrepreneurs in the

re-emergence of supply chain localization

Raziyeh Reza-Gharehbagha, Ashkan Hafezalkotoba, Sobhan Asianb,∗,

Ahmad Makuicand Allan N. Zhangd

aIndustrial Engineering College, Islamic Azad University, South Tehran Branch, EntezariAlley, Oskoui St., Choubi Bridge,

1151863411 Tehran,Iran

bLa Trobe Business School, La TrobeUniversity, Room 411, Level 4, Martin Building, Bundoora, VIC 3086, Melbourne,

Australia

cDepartment of Industrial Engineering, Iran University of Science and Technology, Alghadir Sq., Narmak, 1684613114

Tehran,Iran

dSingapore Institute of Manufacturing Technology, 2 Fusionopolis Way, #08-04, Innovis,138634 Singapore

E-mail: st_r_reza@azad.ac.ir, raziyeh.r.gharehbagh@gmail.com[Reza-Gharehbagh];

a_hafez@azad.ac.ir [Hafezalkotob]; S.Asian@latrobe.edu.au[Asian]; amakui@iust.ac.ir [Makui];

nzhang@SIMTech.a-star.edu.sg [Zhang]

Received 31 December 2018; receivedin revised form 5 July 2019; accepted 7 August 2019

Abstract

While peer-to-peer (P2P) financing mechanisms haverecently gained significant popularity,small and medium

sized enterprise (SME) entrepreneurs still harbor a considerable degree of skepticism about the role of

governmentsin promoting alternative supply chain finance (SCF) solutions in the re-emergenceof supply chain

(SC) localization. This paper studies the SC financing problem of a capital-constrained SME entrepreneur

under two alternativefinancing schemes provided by an online P2P lending-investment platform,namely debt

financing (DF) and equity financing (EF). Considering the competition between a local and a foreign SC in a

shared market, we investigate the direct (i.e., subsidizing domestic production) and indirect (i.e., subsidizing

P2P platform service fee) roles of government intervention toward SC localization. Formulating a three-level

Stackelberg game model, this paper presents a scenario-based decision-making framework to jointly evaluate

four different SCF scenarios through the lens of local SC, P2P financing platforms, and government. The

results reveal that there exist threepossible regions (i.e., DF, EF, and Conflict), within which the government

and the P2P financing platforms can examine the alternative SCF schemes in order to achieve a mutually

agreeable agreement. Our sensitivity analysis on interest rate and exchangeratio suggests that, when financed

via an online P2P lending platform (i.e., DF), the local SC always achieves a higher profit under the direct

intervention policy. The indirect policy, however, is preferred only when EF is the main source of SCF and

the exchange ratio is sufficiently high.

∗Corresponding author.

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2019 The Authors.

International Transactionsin Operational Research C

2019 International Federation ofOperational Research Societies

Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148,

USA.

R. Reza-Gharehbagh et al. / Intl. Trans.in Op. Res. 27 (2020) 2534–2558 2535

Keywords:online peer-to-peer (P2P) platforms; supply chain finance (SCF); supply chain localization; SME entrepreneur-

ship; debt and equity financing; government financial intervention

1. Introduction

Localization in the context of supply chain (SC) reconfigurationis defined as the act of internalizing

decision-making responsibilities and partial insourcing of processes thatwere previously outsourced

due to different reasons. In certain circumstances, SC localization can be perceived as a strategic

trade policy aiming to design and deliver critical services or products through localized end-to-end

SCs (Wu and Jia, 2018). Developing and protecting in-house patented technology, increasing em-

ployment and investment (Arvanitis et al., 2017), enhancing local production, reducing unexpected

outsourcing costs (Drauz, 2014; Stentoft et al., 2018), and mitigating SC risks (Savitz, 2013) are

found to be the key drivers of SC localization.

In the early 20th century, to lower their R&D, manufacturing, and logistics costs and expand

access to external resources (Stentoft et al., 2018), leading pharmaceutical companies, such as Pfizer,

Johnson& Johnson, and GSK, started to focus on their core competencies and relocate their noncore

SC components to low-cost locations (Huq et al., 2016). They employed outsourcingstrategies that

further globalized the pharmaceutical SCs and significantly increased their competitiveness and

profitability (Huq et al., 2016). At the same time, SC complexity and risk have been magnified

and new challenges toward SC coordination (e.g., endogenous, exogenous, and environmental

disturbance factors) have been created (Huq et al., 2016). After experiencing severe disruptions and

dealing with several strategic and operationalissues (Asian and Nie, 2014), these companies decided

to reconfigure their SC network using SC localization as a strategic mitigation strategy.

The two seemingly competing tendencies (i.e., SC localization and globalization) illustrated in

the example abovehave created new challenges and opportunities for internationaland local policy-

makers (Schniederjans et al., 2015; Enright, 2016). While many multinational enterprises (MNEs)

now seriously evaluate insourcing solutions to repatriate their outsourced SC processes, they over-

look the fact that SC localization needs to occur concurrently with economic reforms and tech-

nological advancements in the host country. To remediate this shortfall, local governments and

policy-makers are expected to financially intervene and support the entrepreneurship movement by

opening up the traditionally protected sectors (e.g., banking and financial industry) and reaping

the expertise of MNEs as a stimulant to economic development (Wu and Jia, 2018). For example,

following Japan’s and South Korea’s successful experiences, policy-makers in China have recently

started to enhance the competitiveness of local firms by offering a variety of tax incentives and

subsidies across strategic industries (Li and Harris, 2016; Qu and Harris, 2018). This trend pro-

vides a window of opportunities to mitigate the risks and rebuild the local economy, and urges

the policy-makers to empower the innovation capabilities of small and medium sized enterprise

(SME) entrepreneurs by financially stimulating the SC localization process (Wyman, 2014; U.K.

Government, 2015; Hafezalkotob, 2017a).

SME entrepreneurs play a substantial role in driving and sustaining SC innovation in both

developed and developing economies (Eng, 2016; Yan et al., 2016; Gao et al., 2018). In the

United States, SMEs account for approximately 98.2% of all companies, employing about half

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2019 The Authors.

International Transactionsin Operational Research C

2019 International Federation of OperationalResearch Societies