Trust-based cooperation in Silk Road Economic Belt countries: strategical ordering in the assembly supply chain

Author:Xujin Pu, Zhenxing Yue, Qiuyan Chen, Hongfeng Wang, Guanghua Han
DOI:https://doi.org/10.1108/IJLM-02-2020-0096
Pages:801-828
Publication Date:04 Nov 2020
Trust-based cooperation in Silk
Road Economic Belt countries:
strategical ordering in the
assembly supply chain
Xujin Pu, Zhenxing Yue and Qiuyan Chen
Jiangnan University, Wuxi, China
Hongfeng Wang
Northeastern University, Shenyang, China, and
Guanghua Han
Shanghai Jiao Tong University, Shanghai, China
Abstract
Purpose This papers purpose is to suggest that manufacturers strategically placesoft orders for assembly
materials with suppliers in Silk Road Economic Belt countries who probably doubt the realization of the soft
orders placed.
Design/methodology/approach First, a two-stage Stackelberg competition is constructed, taking into
account the suppliers trust level in formulating the decisionprocess in the assembly supply chain. The authors
then provide a buyback contract to coordinate the supply chain, in which the manufacturer obtains enough
supplies by sharing some of the perceivedrisks of not fully trusted suppliers. Furthermore,the authors conduct
a numerical study to investigate the influence of trust under a decentralized case and a buyback contract.
Findings The authors found that all supply chain partners in Silk Road Economic Belt countries experience
potential losses due to not fully trusting certain conditions. The study also shows that, in Silk Road Economic
Belt countries, operating under a buyback contract is better than being without one in terms of assembly
supply chain performance.
Research limitations/implicationsOn the one hand, the authors only consider the asymmetry of demand
information without considering that of cost structure information. On the other hand, a natural extension of
the paper is to integrate single-period transactions into the multi-period transaction problem setting. As all
these issues require substantial effort, the authors reserve them for future exploration.
Originality/valueDoing business withnot-fully-trustworthy partners in Silk Road Economic Belt countries
is risky, and this study reveals how trust worksin global cooperation and with strategic reactions in situations
of partial trust.
Keywords Trust, Silk Road Economic Belt, Ordering strategy, Assembly supply chain
Paper type Research paper
1. Introduction
In September2013, President Xi of China proposed the buildingof the Silk Road Economic Belt
to boostregional cooperation, and he called forthe establishment of a new regional cooperation
model. Theseproposals are officially termed as the One Belt One Road(OBOR) initiative or the
Belt and Road Initiative(BRI; Huang, 2016). It focuses on improvingcooperation with countries
in vast parts of Asia, Europe and Africa, especially in the fields of economic interests,
international trade and shipping route security. Especially inChina, the OBOR strategy and
free trade pilot zoneshave created more opportunities for cross-border assemblysystems. For
Silk Road
Economic Belt
countries
801
This paper forms part of a special section Impacts of the Belt and Road Initiative on Global
Supply Chain and International Logistics, guest edited by Paul Tae-Woo Lee, Kamonchanok
Suthiwartnarueput, Kevin X. Li, and Ying-En Ge.
The research has been supported by National Natural Science Foundation of China (Nos. 71871105,
71501128, and 71632008).
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/0957-4093.htm
Received 15 November 2019
Revised 11 May 2020
Accepted 22 June 2020
The International Journal of
Logistics Management
Vol. 31 No. 4, 2020
pp. 801-828
© Emerald Publishing Limited
0957-4093
DOI 10.1108/IJLM-02-2020-0096
example, from 2013 to 2018, the value of trade between China and other OBOR countries
surpassed US $6 trillion, accounting for 27.4% of Chinas total trade in goods and growing
faster than the countrysoverall foreign trade. In 2018, the total valueof retail goods imported
and exported through the cross-border e-commerce platform of China Customs reached
US $20.3 billion,growing by 50% year on year. Exports were US $8.48 billion,growing by 67%
year on year, and imports were US $11.87 billion, growing by 39.8% yearon year.
Huawei is the worlds leading information and communication technology (ICT) solutions
provider, focusing on the field of ICT. With the initiative of the 21st-century Maritime Silk
Road, more and more Chinese companies have set up branches in the Belt and Road countries
to reduce raw material costs and achieve regional economic integration. For example, Huawei
implements the strategy of global operation. As of the end of 2016, Huawei has branches or
representative offices in 168 countries around the world. At the same time, 16 research
institutes, 28 innovation centers and 45 product service centers have been established in the
United States, Europe, Japan, India, Singapore and other regions according to the capabilities
of different countries and regions. Haier Group has already become a large multinational
enterprise group. It has established 24 industrial parks, 10 R&D centers, 108 manufacturing
centers and 66 marketing centers around the world.
As the OBOR increases the geographic distance of supply chain, quick responses to
markets and low transaction costs are eagerly preferred by companies. In assembly system
practices, manufacturers usually follow initiatives, such as electronic data interchange (EDI),
to share demand information with suppliers through soft orders. The manufacturer places its
soft order to supplier, which is helpful to the upstream suppliers in estimating the market
trend and making their capacity decisions. The soft order can be canceled without any cost
until the manufacturer makes its order at the beginning of the selling season. These costless,
non-binding and non-verifiable types of orders are employed quickly and directly transfer
market information to suppliers. Despite well-documented failures of the cheap-talk
communication, many supply chain partners continue to share demand information via
soft orders even though it can be canceled at no cost. The soft orders are applied in many
industrial initiatives without involving other complex contracts (Aviv 2001;Holmstr
om et al.,
2002). For example, up to 95% of top 500 enterprises in the world adopt EDI technology to
process trade, deal with business documents with their business partners and rebuild the
business mode and management mode according to the EDI (Xiong and Wu, 2017). In the Silk
Road Economic Belt project, more companies show a strong interest in cross-national
cooperation. However, most companies are unfamiliar with their foreign partners because of
very limited past trade experience. As a result, the suppliers may not fully satisfy the
manufacturers unguaranteed soft orders, depending on their trust level. For example, Luo
Yuze, a researcher at the Development Research Center of the State Council, believes that
some companies still have a relatively serious trust deficit in the OBOR program. In this
study, we aim to give a solution to the not fully trusted case to coordinate the assembly supply
chain and improve the sustainability of the cooperation between business partners.
Trust plays a key role regarding the suppliersdecision about capacity in Silk Road
Economic Belt countries. Fully relying on a soft order also usually leads to an overproduction
problem for suppliers, because the soft order can be canceled at no cost and the manufacturer
has an incentive to inflate soft orders for abundant supply. On the one hand, the large
geographical distance increases the risk of interruption through natural disaster and
terrorism, while, on the other hand, the complex component assembly structure actually
increases risk, for example, in terms of late deliveries. Given that a manufacturer may
deliberately inflate the soft orders, a rational supplier may also lack trust in the manufacturer
and completely ignore such orders. Incidentally, the Boeing Company, which works with
17,500 suppliers in more than 50 countries, states: ...It has sometimes been a job to persuade
all these suppliers to invest enough to meet future demand ...Boeing also acknowledges
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