TY - UNPB
T1 - Order-Based Trade Credit and Operational Performance in the Nanostore Retail Channel
AU - Escamilla, Rafael
AU - Fransoo, Jan C.
AU - Gallino, Santiago
PY - 2022/8
Y1 - 2022/8
N2 - Millions of nanostores serve bottom-of-the-pyramid consumers in emerging markets. Their suppliers, Consumer Packaged Goods (CPG) companies, struggle with high operational costs that largely stem from shopkeepers’ liquidity constraints. We empirically investigate whether suppliers can improve operational performance by allowing nanostore shopkeepers to delay order payment by a short period of time. We term this delayed payment alternative "Order-Based Trade Credit" (OBTC) and examine the key trade-off suppliers face when transacting with it. OBTC can create efficiency gains in selling and delivering products to nanostores. However, OBTC is risky, as shopkeepers might default on their credit lines. Leveraging data from a nanostore supplier offering OBTC, we assess the effect of this novel policy on the operational performance of the supplier through a difference-in-differences approach. We find that OBTC leads to substantial gains for nanostore suppliers, across a range of important operational drivers. In addition, we show when the benefits of OBTC compensate the risk suppliers take in providing it.
AB - Millions of nanostores serve bottom-of-the-pyramid consumers in emerging markets. Their suppliers, Consumer Packaged Goods (CPG) companies, struggle with high operational costs that largely stem from shopkeepers’ liquidity constraints. We empirically investigate whether suppliers can improve operational performance by allowing nanostore shopkeepers to delay order payment by a short period of time. We term this delayed payment alternative "Order-Based Trade Credit" (OBTC) and examine the key trade-off suppliers face when transacting with it. OBTC can create efficiency gains in selling and delivering products to nanostores. However, OBTC is risky, as shopkeepers might default on their credit lines. Leveraging data from a nanostore supplier offering OBTC, we assess the effect of this novel policy on the operational performance of the supplier through a difference-in-differences approach. We find that OBTC leads to substantial gains for nanostore suppliers, across a range of important operational drivers. In addition, we show when the benefits of OBTC compensate the risk suppliers take in providing it.
KW - retail operations
KW - trade credits
KW - financial constraints
KW - emerging markets
KW - nanostores
U2 - https://dx.doi.org/10.2139/ssrn.4190552
DO - https://dx.doi.org/10.2139/ssrn.4190552
M3 - Working paper
BT - Order-Based Trade Credit and Operational Performance in the Nanostore Retail Channel
ER -