Buy-back and Revenue-Sharing Contracts in Global Supply Chain
Abstract: The main propose of
this study is to investigate how exchange rate risk affects the buy-back and
revenue-sharing contracts in the global supply chain, hence to improve the
performance of global supply chain.
Design/methodology/approach: Based on a two-echelon global supply chain,
with the model equilibrium, this paper studies the difference between the
buy-back contract and the revenue-sharing contract. By the transmitting of the
exchange rate risk, it discusses the node-enterprises’ optimal strategies.
Findings: The result shows that: (1) Both these two contracts can
diminish the inefficiency caused by demand risk, but none of them can manage
the exchange rate risk. (2) No matter which currency is used to settle the
payment, both these two contracts will lead to the transmitting of exchange
rate risk from one node-enterprise to another. (3) When the currency of the
supplier’s country in the relatively appreciating, it is better to use the
buy-back contract; when the currency of the supplier’s country in the
relatively depreciating, the revenue-sharing contract will lead to a better
result.
Research limitations/implications: Though this study analyzes how the
exchange rate risk affects these two contracts, it based on the assumption that
node-enterprises’ goal is maximizing theirs expected profit. In fact, many
firms not only focus on maximizing theirs expected profit; the risk-taking is
also an important concern. For future researches, how firms’ risk-preferences
affects theirs decisions in the global supply chain will be an interesting
question. Also, will there be any difference if consider the node-enterprises’
utility functions instead of the expected profit.
Originality/value: Existing literature about the global supply chain
mainly focus on the exchange rate risk management, few of them considers the
double marginalization effect caused by the demand risk. Therefore, with the exchange
rate fluctuation, we discuss the difference between the buy-back contract and
the revenue-sharing contract.
Author: Yang Liu
Journal Code: jptindustrigg150059
