Supply Chain Finance (SCF) / Financial Supply Chain Management (F-SCM)

Supply Chain Finance (SCF) / Financial Supply Chain Management (F-SCM)

 

 

From STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE

fscm8

There are two Areas where FSCM/SCF names are used but in different contexts.

  • Inter firm FSCM
  • Intra firm FSCM

 

Inter firm F-SCM

  • Trade Finance
  • Supply Chain Finance (SCF)
  • Value Chain Finance
  • Supplier Finance
  • Inter firm Finance
  • Reverse Factoring
  • Collaborative  Cash to Cash Cycles Management

During 2008 global financial crisis, the trade financing dried up resulting in decline in trade of goods and services.

Since the crisis, Financial De-globalization and Decline of Correspondent Banking has also made availability of financial credit harder.

Cash flow and working capital management is helped by inter firm collaboration among Suppliers and Buyers.

Financial Institutions which provide trade credit also benefit from inter firm collaboration.

 From SUPPLY CHAIN FINANCE FUNDAMENTALS: What It Is, What It’s Not and How it Works

What Supply Chain Finance is Not

The world of trade finance is complex and varied. There are numerous ways to increase business capital on hand and, in many cases, the differences are slightly nuanced. Given this landscape, it’s not just important to understand what supply chain finance is; it’s also important to understand what it is not.

It is not a loan. Supply chain finance is an extension of the buyer’s accounts payable and is not considered financial debt. For the supplier, it represents a non-recourse, true sale of receivables. There is no lending on either side of the buyer/supplier equation, which means there is no impact to balance sheets.

It is not dynamic discounting or an early payment program. Early payment programs, such as dynamic discounting, are buyer-initiated programs where buyers offer suppliers earlier payments in return for discounts on their invoices. Unlike supply chain finance, buyers are seeking to lower their cost of goods, not to improve their cash flow. Dynamic discounting and early payment programs often turn out to be expensive for both suppliers (who are getting paid less than agreed upon) and buyers who tie up their own cash to fund the programs.

It is not factoring. Factoring enables a supplier to sell its invoices to a factoring agent (in most cases, a financial institution) in return for earlier, but partial, payment. Suppliers initiate the arrangement without the buyer’s involvement. Thus factoring is typically much more expensive than buyer-initiated supply chain finance. Also, suppliers trade “all or nothing” meaning they have no choice to participate from month-to-month to the degree that their cash flow needs dictate. Finally, most factoring programs are recourse loans, meaning if a supplier has received payment against an invoice that the buyer subsequently does not pay, the lender has recourse to claw back the funds.

 

From Mckinsey on Payments

fscm10

 

From Financial Supply Chain Management

financial-supply-chain-management-4-728

 

From Best Practices in Cash Flow Management and Reporting

46_-3571_20

 

From STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE

fscm9

 

From Financing GPNs through inter-firm collaboration?
Insights from the automotive industry in Germany and Brazil

fscm 3

 

Intra Firm F-SCM

  • Working Capital Management
  • Cash Flow Management
  • Liquidity Management
  • Cash to Cash Conversion Cycle Management (C2C Cycle/CCC)
  • Financial Supply Chain Management (F-SCM) in Manufacturing companies
  • Financial Supply chain management in financial institutions
  • Supply Chain Finance
  • Accounts Payable Optimization
  • Accounts Receivable Optimization
  • Operations and Finance Interfaces
  • Current Asset Management (Current Ratio Analysis)

This is not a new subject.  Corporate Finance, Financial Controls, and working capital management have been active business issues.  Benefits of Supply chain management include increase in inventory turnover and decline in current assets.

There are many world class companies who manage their supply chains well and work with minimal working capital.  Lean Manufacturing, Agile Manufacturing, JIT manufacturing are related concepts.  Just-In-Time manufacturing developed in Toyota Corp. reduces inventory portion of C2C cycle.  Other examples include

  • Apple
  • Walmart
  • Dell

Currently, most of the Supply Chain analytics efforts unfortunately do not integrate analysis of financial benefits of operating decisions.

There are many studies recently which suggest that Cash to Cash Conversion Cycle is a better determinant of corporate liquidity.  C2C Cycle is a dynamic liquidity indicator and Current Assets is a static indicator of liquidity.  I would like to point out that none of the studies relate C2C cycle with Current Ratio.  Current Ratio is based on balance sheet positions of current assets and current liabilities.  C2C cycle is based on flows in supply chains.  Accumulation of flow results in Current assets (Stock).  To make it Stock-Flow Consistent, more work is required.

 

From Supply Chain Finance: some conceptual insights.

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From Financial Supply Chain Management

financial-supply-chain-management-5-728

 

From The Interface of Operations and Finance in Global Supply Chains

fscm4

 

From SUPPLY CHAIN-ORIENTED APPROACH OF WORKING CAPITAL MANAGEMENT

ifscm5

 

From IMPROVING FIRM PERFORMANCE THROUGH VALUE-DRIVEN SUPPLY CHAIN MANAGEMENT: A CASH CONVERSION CYCLE APPROACH

fscm6

 

From IMPROVING FIRM PERFORMANCE THROUGH VALUE-DRIVEN SUPPLY CHAIN MANAGEMENT: A CASH CONVERSION CYCLE APPROACH

fscm7

 

From THE CYCLE TIMES OF WORKING CAPITAL: FINANCIAL VALUE CHAIN ANALYSIS METHOD

fscm12

 

Call for papers: Supply Chain Finance

Call for papers for Special Topic Forum in Journal of Purchasing and Supply Management (Manuscript Submission:  March 31, 2017)

Supply chain finance is a concept that lacks definition and conceptual foundation.  However, the recent economic downturn forced corporates to face a series of financial and economic difficulties that strongly increased supply chain financial risk, including bankruptcy or over-leveraging of debt.  The mitigation and management of supply chain financial risk is becoming an increasingly important topic for both practitioners and academics leading to a developing area of study known as supply chain finance.  There are two major perspectives related to the idea of managing finance across the supply chain.  The first is a relatively short-term solution that serves as more of a “bridge” and that is provided by financial institutions, focused on accounts payables and receivables.  The second is more of a supply chain oriented perspective – which may or may not involve a financial institution, focused on working capital optimization in terms of accounts payable, receivable, inventory, and asset management.  These longer-term solutions focus on strategically managing financial implications across the supply chain.

Recent years have seen a considerable reduction in the granting of new loans, with a significant increase in the cost of corporate borrowing (Ivashina and Scharfstein, 2010). Such collapse of the asset and mortgage-backed markets dried up liquidity from industries (Cornett et al., 2011). In such difficult times, firms (especially those with stronger bargaining power) forced suppliers to extend trade credit in order to supplement the reduction in other forms of financing (Coulibaly et al., 2013; Garcia-Appendini and Montoriol-Garriga, 2013). The general lack of liquidity, in particular for SMEs, has directly affected companies’ ability to stay in the market, reflecting on the stability of entire supply chains. There are many other factors influencing liquidity and financial health that are critical to assess.

These trends and the continued growth of outsourced spend have contributed considerably to the need for and spread of solutions and programs that help to mitigate and better manage financial risk within and across the supply chain.  One of the most important approaches is what is being termed Supply Chain Finance (SCF) (Gelsomino et al., 2016; Pfohl and Gomm, 2009; Wuttke et al., 2013a). SCF is an approach for two or more organizations in a supply chain, including external service provides, to jointly create value through means of planning, steering, and controlling the flow of financial resources on an inter-organizational level (Hofmann, 2005; Wuttke et al., 2013b).  It involves the inter-company optimization of financial flows with customers, suppliers and service providers to increase the value of the supply chain members  (Pfohl and Gomm, 2009).  According to Lamoureux and Evans (2011) supply chain financial solutions, processes, methods are designed to improve the effectiveness of financial supply chains by preventing detrimental cost shifting and improving the visibility, availability, delivery and cost of cash for all global value chain partners.  The benefits of the SCF approach include reduction of working capital, access to more funding at lower costs, risk reduction, as well as increase of trust, commitment, and profitability through the chain (Randall and Farris II, 2009).

Literature on SCF is still underdeveloped and a multidisciplinary approach to research is needed in this area. In order to better harmonize contributions of a more financial nature with ones coming from the perspective of purchasing & supply chain, there is a need of developing theory on SCF, starting with a comprehensive definition of those instruments or solutions that constitute the SCF landscape. SCF has been neglected in the Purchasing & Supply Management (PSM) literature, although PSM plays a critical role in managing finance within the supply chain.  PSM uses many of the processes and tools that are part of a comprehensive supply chain financial program to better manage the supply base, in terms of relationships, total cost of ownership, cost strategies and pricing volatility (see for example Shank and Govindarajan 1992). Reverse factoring is a technique which is also widely used to manage the supply base (Wuttke et al, 2013a) as is supplier development and investment in suppliers.

Research on SCF from a PSM perspective needs further development. In particular, empirical evidence would prove useful for testing existing models and hypotheses, addressing the more innovative schemes and investigating the adoption level and the state of the art of different solutions. Research is also needed for the development of a general theory of supply chain finance.  There is also limited research that focuses on the link between supply chain financial tools and supply chain financial performance.  Finally, considering the plurality of solutions that shape the SCF landscape, literature should move towards the definition of holistic instruments to choose the best SCF strategy for a supply chain, considering its financial performance and the contextual variables (e.g. structure, bargaining power) that characterize it.

Potential topics

The purpose of this special topic forum is to publish high-quality, theoretical and empirical papers addressing advances on Supply Chain Finance. Original, high quality contributions that are neither published nor currently under review by any other journals are sought. Potential topics include, but are not limited to:

  • Theory development, concept and definition of SCF
  • Taxonomy of SCF solutions
  • Strategic cost management across the supply chain
  • Total cost of ownership
  • Life cycle assessment and analysis
  • Commodity risk and pricing volatility
  • Supply chain financial metrics and measures
  • Cost-benefit analysis
  • Relationship implications of supply chain finance
  • Tax and transfer pricing in the supply chain
  • Foreign exchange and global currency and financing risk
  • Financial network design and financial supply chain flows
  • The organizational perspective on SCF and the implementation process
  • Role of innovative technologies to support SCF ( (e.g. block chain, internet of things)
  • Supply chain collaboration for improved supply chain financial solutions
  • SCF adoption models, enablers and barriers
  • SCF from different party perspectives (especially suppliers and providers)
  • SCF and risk mitigation and management

Manuscript preparation and submission

Before submission, authors should carefully read the Journal’s “Instructions for Authors”. The review process will follow the Journal’s normal practice. Prospective authors should submit an electronic copy of their complete manuscript via Elsevier’s manuscript submission system (https://ees.elsevier.com/jpsm) selecting “STF Supply Chain Finance” as submission category and specifying the Supply Chain Finance topic in the accompanying letter. Manuscripts are due March 31, 2017 with expected publication in June of 2018.

FOR COMMENTS OR QUESTIONS PLEASE CONTACT THE GUEST EDITORS:

Federico Caniato, Politecnico di Milano, School of Management, federico.caniato@polimi.it

Michael Henke, TU Dortmund and Fraunhofer IML, Michael.Henke@iml.fraunhofer.de

George A. Zsidisin, Virginia Commonwealth University, gazsidisin@vcu.edu

References

Cornett, M.M., McNutt, J.J., Strahan, P.E., Tehranian, H., 2011. Liquidity risk management and credit supply in the financial crisis. J. financ. econ. 101, 297–312.

Coulibaly, B., Sapriza, H., Zlate, A., 2013. Financial frictions, trade credit, and the 2008–09 global financial crisis. Int. Rev. Econ. Financ. 26, 25–38.

Garcia-Appendini, E., Montoriol-Garriga, J., 2013. Firms as liquidity providers: Evidence from the 2007–2008 financial crisis. J. financ. econ. 109, 272–291.

Gelsomino, L.M., Mangiaracina, R., Perego, A., Tumino, A., 2016. Supply Chain Finance: a literature review. Int. J. Phys. Distrib. Logist. Manag. 46, 1–19.

Govindarajan, Vijay, and John K. Shank. “Strategic cost management: tailoring controls to strategies.” Journal of Cost Management 6.3 (1992): 14-25.

Wuttke, D. A., Blome, C., Foerstl, K., & Henke, M. (2013a). Managing the innovation adoption of supply chain finance—Empirical evidence from six European case studies. Journal of Business Logistics, 34(2), 148-166.

Wuttke, D. A., Blome, C., & Henke, M. (2013b). Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management. International journal of production economics, 145(2), 773-789.

Hofmann, E., 2005. Supply Chain Finance: some conceptual insights. Logistik Manag. Innov. Logistikkonzepte. Wiesbad. Dtsch. Univ. 203–214.

Ivashina, V., Scharfstein, D., 2010. Bank lending during the financial crisis of 2008. J. financ. econ. 97, 319–338.

Lamoureux, J.-F., Evans, T.A., 2011. Supply Chain Finance: A New Means to Support the Competitiveness and Resilience of Global Value Chains. Social Science Research Network, Rochester, NY.

Lekkakos, S.D., Serrano, A., 2016. Supply chain finance for small and medium sized enterprises: the case of reverse factoring. Int. J. Phys. Distrib. Logist. Manag.

Pfohl, H.C., Gomm, M., 2009. Supply chain finance: optimizing financial flows in supply chains. Logist. Res. 1, 149–161.

Randall, W., Farris II, T., 2009. Supply chain financing: using cash-to-cash variables to strengthen the supply chain. Int. J. Phys. Distrib. Logist. Manag. 39, 669–689.

 

 

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Key Sources of Research:

 

SUPPLY CHAIN FINANCE FUNDAMENTALS: What It Is, What It’s Not and How it Works

http://primerevenue.com/wp-content/uploads/2016/08/supplychainFundamentals.pdf

Call for papers: Supply Chain Finance

Call for papers for Special Topic Forum in Journal of Purchasing and Supply Management (Manuscript Submission:  March 31, 2017)

https://www.journals.elsevier.com/journal-of-purchasing-and-supply-management/call-for-papers/call-for-papers-supply-chain-finance

 

FINANCIAL SUPPLY CHAIN MANAGEMENT – CHALLENGES AND OBSTACLES

Peter Kristofik, Jenny Kok, Sybren de Vries, Jenny van Sten-van’t Hoff

2012

http://www.journals.acrn.eu/resources/Journals/Joe022012/201202h.pdf

 

 

Supply chain finance: optimizing financial flows in supply chains

Hans-Christian Pfohl • Moritz Gomm

2009

https://www.researchgate.net/profile/Hans_Christian_Pfohl/publication/220232986_Supply_Chain_Finance-_Optimizing_Financial_Flows_in_Supply_Chains/links/5576960408ae75363751afb1.pdf

 

 

Supply Chain Finance: some conceptual insights.

Hofmann, E. (2005)

In: Lasch, R./ Janker, C.G. (Hrsg.): Logistik Management – Innovative Logistikkonzepte, Wiesbaden
2005, S. 203-214.

https://www.alexandria.unisg.ch/22597/1/Supply%20Chain%20Finance.pdf

 

 

Financial Supply Chain Management – A review

Georgios Vousinas

2017

https://www.researchgate.net/publication/320196808_Financial_Supply_Chain_Management_-_A_review

 

 

Basic areas of management of finance flow in supply chains

Marlena Grabowska1

Częstochowa University of Technology

https://www.czasopismologistyka.pl/artykuly-naukowe/send/301-artykuly-drukowane/4621-artykul

 

THE FLOW OF FINANCIAL RESOURCES:AN INEVITABLE PART OF SUPPLY CHAIN
DESIGN ACTIVITIES

ERIK HOFMANN

https://www.alexandria.unisg.ch/50999/1/Hofmann_The%20flow%20of%20financial%20resources%20-%20An%20inevitable%20part%20of%20supply%20chain%20design%20activities.pdf

 

Motorola’s global financial supply chain strategy

Ian D. Blackman

Christopher P. Holland

Timothy Westcott

https://www.researchgate.net/profile/Ian_Blackman/publication/256462716_Motorola%27s_global_financial_supply_chain_strategy/links/0c960522de3de564bb000000/Motorolas-global-financial-supply-chain-strategy.pdf

A SUPPLY CHAIN-ORIENTED APPROACH OF WORKING CAPITAL MANAGEMENT

 

Erik Hofmann

Herbert Kotzab

2010

 

http://www.academia.edu/download/38511199/Hofmann_et_al-2010-Journal_of_Business_Logistics.pdf

Financial Supply Chain Management – Neue Herausforderungen für die Finanz- und Logistikwelt.

Pfohl, H.-Chr./ Hofmann, E./ Elbert, R. (2003):

In: Logistik Management 5 (2003) 4, S. 10-26

https://www.alexandria.unisg.ch/29035/1/Financial%20Supply%20Chain%20Management.pdf

 

Financing GPNs through inter-firm collaboration?
Insights from the automotive industry in Germany and Brazil

Christian Baumeister
Hans-Martin Zademach

http://www.ku.de/fileadmin/150304/img/Publikationen/MDW_21__2013__Financing_GPNs.pdf

 

 

Die Financial Chain im Supply Chain Management: Konzeptionelle Einordnung und Identifikation von Werttreibern.

Franke, J./ Pfaff, D./ Elbert, R./ Gomm, M./ Hofmann, E. (2005):

In: Ferstel, O. K./ Sinz, E. J./ Eckert, S./ Isselhorst, T. (Hrsg.): Wirtschaftsinformatik 2005. eEcono‐my, eGovernment, eSociety. Heidelberg 2005, S. 567‐584

https://pdfs.semanticscholar.org/ced5/8858fcdb171db931b3c033bb1cdf55ea7683.pdf

 

 

Financial-Chain-Management
Ein generisches Modell zur Identifikation von Verbesserungspotenzialen

Donovan Pfaff
Bernd Skiera
TimWeitzel

http://www.e-docs-standards.de/cms/images/Publikationen/wi2004_2_107-117.pdf

 

 

The Effects of Cross-Functional Integration on Profitability, Process
Efficiency, and Asset Productivity

Morgan Swink and Tobias Schoenherr

http://www.logisticsexpert.org/top_articles/2016/2016%20-%20Research%20-%20JBL%20-%20The%20Effects%20of%20Cross-Functional%20Integration%20on%20Profitability,%20Process%20Efficiency.pdf

 

 

Quantifying and setting off network performance

Erik Hofmann

2006

https://www.alexandria.unisg.ch/30679/1/Quantifying%20Network%20Performance_final%20version.pdf

 

 

Developing and discussing a supply chain-oriented model of collaborative working capital management

by
Erik Hofmann, University of St.Gallen, Switzerland
& Herbert Kotzab, Copenhagen Business School, Denmark

2006

 

http://www.academia.edu/download/39750008/Developing_and_discussing_a_supply_chain20151106-23047-gve831.pdf

 

 

The link between Purchasing and Supply Management maturity
models and the financial performance of international firms

Fábio Pollice
Afonso Fleury

 

http://ejournal.narotama.ac.id/files/The%20link%20between%20purchasing%20and%20supply%20management%20maturity%20models%20and%20the%20financial%20performance%20of%20international%20firms.pdf

 

 

SUPPLY CHAIN FINANCE
A Buyer-Centric Supplier Payables Financing Initiative

Martin Jemdahl
Lund, 2015

http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=8870575&fileOId=8870576

 

 

Supply Chain Finance: Optimal Introduction and Adoption Decisions

David A. Wuttke, Constantin Blome, H. Sebastian Heese and Margarita
Protopappa-Sieke

http://sro.sussex.ac.uk/61216/1/__smbhome.uscs.susx.ac.uk_qlfd7_Desktop_Supply%20Chain%20Finance%20Blome.pdf

 

 

The Value of Supply Chain Finance

Xiangfeng Chen and Chenxi Hu

https://cdn.intechopen.com/pdfs-wm/17676.pdf

 

Supply Chain Finance “Is SCF ready to be applied in SMEs?”

Jan H Jansen

https://www.researchgate.net/profile/Jan_Jansen11/publication/305391903_Supply_Chain_Finance_Is_SCF_ready_to_be_applied_in_SMEs/links/578cb87508ae5c86c9a6355b.pdf

 

 

Win-win and no-win situations in supply chain finance: The case of accounts receivable programs

Erik Hoffman

https://www.alexandria.unisg.ch/248126/1/Triple-win-situations%20in%20supply%20chain%20finance_final.pdf

 

Introducing a financial perspective in Supply Chain Management: a literature review on Supply Chain Finance

Luca M. Gelsomino, Riccardo Mangiaracina,
Alessandro Perego, Angela Tumino

http://www.summerschool-aidi.it/edition-2015/images/ancona2014/sessione5/gelsomino_et_al.pdf

 

 

Towards A Theory Of Supply Chain And Finance Using Evidence From A Scottish Focus Group

R. de Boer, R. Dekkers, L. M. Gelsomino, C. de Goeij, M. Steeman Q. Zhou,
S. Sinclair, V. Souter

2017

https://www.researchgate.net/profile/Ronald_De_Boer3/publication/320417203_Towards_A_Theory_Of_Supply_Chain_And_Finance_Using_Evidence_From_A_Scottish_Focus_Group/links/59e4875fa6fdcc7154e11430/Towards-A-Theory-Of-Supply-Chain-And-Finance-Using-Evidence-From-A-Scottish-Focus-Group.pdf

 

 

WORKING CAPITAL MANAGEMENT IN SUPPLY CHAINS

Nataliia G. Silaeva

2016

https://dspace.spbu.ru/bitstream/11701/5194/1/Master_thesis_Silaeva_Nataliya.pdf

 

 

Blockchain-driven supply chain finance: Towards a conceptual framework from a buyer perspective

Yaghoob Omrana, Michael Henkeb, Roger Heinesc, Erik Hofmann

https://www.alexandria.unisg.ch/251095/1/WP29-Blockchain-driven%20supply%20chain%20finance%20Towards%20a%20conceptual%20framework%20from%20a%20buyer%20perspective.pdf

 

 

Selecting financial service providers for supply chains: How cross-functional collaboration can improve effectiveness and efficiency

Judith Martin

Prof. Dr. Erik Hofmann

https://www.alexandria.unisg.ch/242145/1/Paper%20Full%20Version_Selecting%20financial%20service%20providers%20for%20supply%20chains.pdf

 

 

Supply chain finance as a value added service offered by a lead logistics provider

Careaga Franco, V.G.
Award date:
2016

https://pure.tue.nl/ws/files/46923583/840401-1.pdf

 

 

B2B PAYMENTS, SUPPLY CHAIN FINANCE & E-INVOICING MARKET

Mirela Amariei
Tiberiu Avram
Ionela Barbuta
Simona Cristea
Sebastian Lupu
Mihaela Mihaila
Andreea Nita
Adriana Screpnic

2015

https://www.ciosummits.com/B2B_Payments_Supply_Chain_Finance__E-invoicing_Market_Guide_2015.pdf

 

 

Linking corporate strategy and supply chain management

Erik Hofmann

http://www.hadjarian.com/company/1860230.pdf

 

 

Concepts and Trade-Offs in Supply Chain Finance

Kasper van der Vliet

http://alexandria.tue.nl/extra2/792140.pdf

 

 

Supply Chain Finance as a Value Added Service offered by a Lead Logistics Provider

by
Victor Gerardo Careaga Franco

http://alexandria.tue.nl/extra2/afstversl/tm/Careaga_Franco_2016.pdf

 

Value Chain Finance: How Banks can Leverage Growth Opportunities for SME Banking Customers

Qamar Saleem, Global SME Banking and Value Chain Specialist, IFC

Dr. Eugenio Cavenaghi, Managing Director -Trade, Export & Supply Chain Finance, Banco Santander

https://www.smefinanceforum.org/sites/default/files/post/files/Value%20Chain%20Finance_Qamar%20Saleem.pdf

 

 

 

Supply-chain finance: The emergence of a new competitive landscape

McKinsey

https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/Supply%20chain%20finance%20The%20emergence%20of%20a%20new%20competitive%20landscape/MoP22_Supply_chain_finance_Emergence_of_a_new_competitive_landscape_2015.ashx

 

 

Fintechs and the Financial Side of Global Value Chains— The Changing Trade-Financing Environment

IMF

2017

http://www.imf.org/external/pubs/ft/bop/2017/pdf/17-21.pdf

 

 

Global Supply Chain Management: Front and Center for Treasurers
Delivering Innovative Solutions that Integrate Financial and Physical Supply Chains

JP Morgan

https://www.jpmorgan.com/pdfdoc/jpmorgan/cash/pdf/global_supply_chain_front_and_center_for_treasurers

 

 

 

Supply Chain Finance

Aberdeen Group

2011

http://media.treasuryandrisk.com/treasuryandrisk/historical/whitepapers/Documents/SCF%20Gaining%20Control%200258-6833-RA-SCFinance-SP-10-NSP.pdf

 

 

 

Supply chain financing: Using cash-to-cash variables to strengthen the supply chain

Wesley S. Randall

M. Theodore Farris II

2009

https://www.researchgate.net/publication/235317652_Supply_chain_financing_Using_cash-to-cash_variables_to_strengthen_the_supply_chain

 

 

 

Supply Chain Finance: ANew Means to Support the Competitiveness and Resilience of Global Value Chains

Jean-François Lamoureux and Todd Evans

http://www.dfait-maeci.gc.ca/economist-economiste/assets/pdfs/research/TPR_2011_GVC/12_Lamoureux_and_Evans_e_FINAL.pdf

 

 

 

Maximising the value of supply chain finance

van der Vliet, K.; Reindorp, M.J.; Fransoo, J.C.

2013

https://pure.tue.nl/ws/files/3620999/387399093290135.pdf

 

 

 

The Interface of Operations and Finance in Global Supply Chains

by
Lima Zhao

2014

https://opus4.kobv.de/opus4-whu/files/179/Zhao_Lima_WHU_Diss_2014.pdf

 

 

 

Supply Chain Finance A conceptual framework to advance research

Kasper van der Vliet, Matthew J. Reindorp, Jan C. Fransoo
Beta Working Paper series 418

http://purl.tue.nl/23232338094103.pdf

 

 

COORDINATING WORKING CAPITAL MANAGEMENT MODEL IN COLLABORATIVE
SUPPLY CHAINS

A. Ivakina, N. Zenkevich

# 9 (E) – 2017

https://dspace.spbu.ru/bitstream/11701/8600/1/WP_9%28E%29-2017_Ivakina_Zenkevich.pdf

 

 

A conceptual model for supply chain finance for SMEs at operational level ‘An essay on the Supply Chain Finance paradigm ….

Jan H Jansen

2017

https://www.researchgate.net/profile/Jan_Jansen11/publication/316245913_A_conceptual_model_for_supply_chain_finance_for_SMEs_at_operational_level_’An_essay_on_the_Supply_Chain_Finance_paradigm_’_Vestnik_Chelyabinsk_State_University_Version_2_18_April_2017/links/5a17d84aaca272df0808ca79/A-conceptual-model-for-supply-chain-finance-for-SMEs-at-operational-level-An-essay-on-the-Supply-Chain-Finance-paradigm-Vestnik-Chelyabinsk-State-University-Version-2-18-April-2017.pdf

 

 

Cash Flow Management and Manufacturing Firm Financial Performance: A Longitudinal Perspective

James R. Kroes

Andrew S. Manikas

http://scholarworks.boisestate.edu/cgi/viewcontent.cgi?article=1040&context=itscm_facpubs

 

 

 

TOWARDS INTER-ORGANIZATIONAL WORKING CAPITAL MANAGEMENT

Sari Monto

2013

https://www.doria.fi/bitstream/handle/10024/90028/isbn9789522653840.pdf?sequence=2

 

 

 

THE CYCLE TIMES OF WORKING CAPITAL: FINANCIAL VALUE CHAIN ANALYSIS METHOD

Miia Pirttilä

2014

https://www.doria.fi/bitstream/handle/10024/102180/Pirttilä_A4.pdf?sequence=2

 

 

Impact of Cash Conversion Cycle on Working Capital through Profitability: Evidence from Cement Industry of Pakistan

Afaq Ahmed Khan1, Mohsin Ayaz2, Raja Muhammad Waseem3, Sardar Osama

Bin Haseeb Abbasi4, Moazzam Ijaz

2016

http://www.iosrjournals.org/iosr-jbm/papers/Vol18-issue3/Version-2/Q1803021124131.pdf

 

 

Cash Conversion Cycle and Firms’ Profitability – A Study of Listed Manufacturing Companies of Pakistan

1Raheem Anser, 2Qaisar Ali Malik

2013

https://pdfs.semanticscholar.org/d400/2a7cb44463d9b8d3b77e2b36e23466cde4ec.pdf

 

 

The Power of Supply Chain Finance

How companies can apply collaborative finance models in their supply chain to
mitigate risks and reduce costs

M. Steeman

https://www.windesheim.nl/~/media/files/windesheim/research-publications/thepowerofsupplychainfinance.pdf

 

 

Supply Chain Finance Payable and Receivable Solutions Guide

2012

JP Morgan

A Conceptual Model of Supply Chain Finance for SMEs at Operational Level

 Jan H Jansen

21 November 2017

 

https://www.researchgate.net/profile/Jan_Jansen11/publication/316245913_A_conceptual_model_for_supply_chain_finance_for_SMEs_at_operational_level_’An_essay_on_the_Supply_Chain_Finance_paradigm_’_Vestnik_Chelyabinsk_State_University_Version_2_18_April_2017/links/5a17d84aaca272df0808ca79/A-conceptual-model-for-supply-chain-finance-for-SMEs-at-operational-level-An-essay-on-the-Supply-Chain-Finance-paradigm-Vestnik-Chelyabinsk-State-University-Version-2-18-April-2017.pdf

 

 

Cash-to-cash: The new supply chain management metric

M Theodore Farris II; Paul D Hutchison

International Journal of Physical Distribution & Logistics Management; 2002

https://www.researchgate.net/profile/Paul_Hutchison/publication/235295065_Cash-to-Cash_The_New_Supply_Chain_Management_Metric/links/02e7e5312767de88df000000.pdf

 

 

 

Integrating financial and physical supply chains: the role of banks in enabling supply chain integration

Rhian Silvestro

Paola Lustrato

2012

 

https://www.researchgate.net/profile/Rhian_Silvestro/publication/263268792_Integrating_financial_and_physical_supply_chains_The_role_of_banks_in_enabling_supply_chain_integration/links/552f9c840cf21cb2faf005c0.pdf

 

 

 

Integration of Finance and Supply Chain: Emerging Frontier in Growing Economies

(A Case Study of Exporting Companies)

Muhammad Ahmar Saeed

Xiaonan Lv

 

http://www.diva-portal.org/smash/get/diva2:420165/FULLTEXT01.pdf

 

Research at the Interface of Finance, Operations, and Risk Management (iFORM): Recent Contributions and Future Directions

Volodymyr Babich

Panos Kouvelis

2017

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3054711

 

 

 

PROCEEDINGS

Interface of Finance, Operations, and Risk Management (iFORM) SIG

2011

https://pdfs.semanticscholar.org/e6e7/947ccbd42b1fe0e90f298ab96cfcef8f0448.pdf

 

 

 

Cash to Cash Cycle with a Supply Chain Perspective

Can Duman
Sawanee Sawathanon

2009

 

http://www.diva-portal.org/smash/get/diva2:221367/FULLTEXT01.pdf

 

DYNAMIC AND STATIC LIQUIDITY MEASURES IN WORKING CAPITAL STRATEGIES

Monika Bolek, PhD

 

http://eujournal.org/index.php/esj/article/viewFile/764/798

 

 

 

Does working capital management affect cost of capital?
A first empirical attempt to build up a theory for supply chain finance

Erik Hofmann, Judith Martin

2016

 

https://www.alexandria.unisg.ch/248595/1/Final%20paper_working%20capital%20management.pdf

 

 

 

Principle of Accounting System Dynamics – Modeling Corporate Financial Statements –

Kaoru Yamaguchi

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.615.6514&rep=rep1&type=pdf

 

 

 

Money and Macroeconomic Dynamics

Accounting System Dynamics Approach

Edition 3.2

 

Kaoru Yamaguchi Ph.D.

Japan Futures Research Center

 

http://muratopia.org/Yamaguchi/macrodynamics/Macro%20Dynamics.pdf

 

 

 

Working Capital Management Model in value chains

Timo Eskelinen

2014

 

http://www.doria.fi/bitstream/handle/10024/96733/Working%20Capital%20Management%20Model%20in%20value%20chains_Timo%20Eskelinen.pdf?sequence=2&isAllowed=y

 

 

 

STANDARD DEFINITIONS FOR TECHNIQUES OF SUPPLY CHAIN FINANCE

Global Supply Chain Finance Forum

2016

 

https://cdn.iccwbo.org/content/uploads/sites/3/2017/01/ICC-Standard-Definitions-for-Techniques-of-Supply-Chain-Finance-Global-SCF-Forum-2016.pdf

https://baft.org/docs/default-source/current-news/download-the-scf-definitions.pdf

 

 

IMPROVING FIRM PERFORMANCE THROUGH VALUE-DRIVEN SUPPLY CHAIN MANAGEMENT: A CASH CONVERSION CYCLE APPROACH

Pan Theo Große-Ruyken
Stephan M. Wagner
Wen-Fong Lee

Baltic Management Review

Volume 3 No 1

2008

 

 

 

Best Practices in Cash Flow Management and Reporting

Hans-Dieter Scheuermann

http://www.financepractitioner.com/cash-flow-management-best-practice/best-practices-in-cash-flow-management-and-reporting?full

Financial Supply Chain Management

 

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Gantt Chart Simulation for Stock Flow Consistent Production Schedules

Gantt Chart Simulation for Stock Flow Consistent Production Schedules

 

I have knowledge of two software which do Gantt chart simulation for production scheduling.  These are used by top most companies in the world for production planning and scheduling now a days known as Supply Chain Management (SCM).

Production Schedules are stock flow consistent which means that starting inventories, and unused production of products result in cumulative inventory which is plotted for each of the product.

Production and Shipments (arrivals and dispatched) create Flows and Inventory levels indicate Stock level positions.

Gantt Chart simulators are excellent tools for operations management in plants.

The first Gantt chart was actually developed by Karol Adamiecki in Poland.  He called it a Harmonogram.  Henry Gantt in 1910 published first gantt chart which was later than publication by Karol Adamiecki.

These two charts below show Simulator window in which Gantt chart and inventory level plots are displayed.

Gantt Chart Simulator in Aspen Tech Plant Scheduler for Production Scheduling

active-guidance_10740930

 

Gantt Chart Simulator in Atlantic Decision Sciences Scheduler

Scheduling Board Single Chart

Key Sources for Research:

 

A Presentation by Chris Jones on Evolution of Graphical Production Scheduling Software

at the Cornell University Deptt of ORIE

 

 

 

Atlantic Decision Sciences

http://atlanticdecisionsciences.com

 

 

Aspen Technology

http://aspentech.com/products/aspen-plant-scheduler/

 

 

History of Gantt Chart

http://www.ganttchart.com/orgforwork.html

 

 

History of Production Scheduling

http://www.springer.com/cda/content/document/cda_downloaddocument/9780387331157-c1.pdf?SGWID=0-0-45-321351-p148129370

 

 

The harmonogram: an overlooked method of scheduling work.

Marsh, E. R. (1976).

Project Management Quarterly, 7(1), 21–25.

https://www.pmi.org/learning/library/harmonogram-overlooked-method-scheduling-work-5666

 

The Harmonogram of Karol Adamiecki

Edward R. Marsh

http://amj.aom.org/content/18/2/358

 

Karol Adamiecki

https://www.pocketbook.co.uk/blog/tag/karol-adamiecki/

Production Chain Length and Boundary Crossings in Global Value Chains

Production Chain Length and Boundary Crossings in Global Value Chains

 

From Structure and length of value chains

In a value chain, value is added in sequential production stages and is carried forward from one producer to the next in the form of intermediate inputs. Value chains driven by the fragmentation of production are not an entirely new economic phenomenon, but the increasing reliance on imported intermediate inputs makes value chains global.

According to a 2013 report by the OECD, WTO and UNCTAD for the G-20 Leaders Summit, “Value chains have become a dominant feature of the world economy” (OECD et al., 2013).

Obviously, this dominant feature of the world economy needs measuring and analyzing. Policy-relevant questions include, but are not limited to:

  • what is the contribution of global value chains to economy GDP and employment? how long and complex are value chains?
  • what is the involvement and position of individual industries in global value chains? do multiple border crossings in global value chains really matter?

These and related questions generated a considerable amount of investigations proposing new measures of exports and production to account for global value chains. Some of those were designed to re-calculate trade  flows in value added terms, whereas other provided an approximation of the average length of production process.

A relatively new stream of research focuses on a deep decomposition of value added or final demand ( rather than exports or imports ) into components with varied paths along global value chains and measurements of the length of the related production processes. Consider, for example, a petrochemical plant that generates some value added equal to its output less all intermediate inputs used. We would be interested to know which part of this value added, embodied in the petrochemicals, is used entirely within the domestic economy and which part is exported.

We would also inquire how much of the latter satisfies final demand in partner countries and how much is further used in production and, perhaps, in exports to third countries and so on. We would be interested, in particular, in counting the number of production stages the value added in these petrochemicals passes along the chain before reaching its final user.

 

From Structure and length of value chains

APL

 

 

From Structure and length of value chains

A natural question is whether this method can be applied to the real economy with myriads of products, industries and dozens of partner countries? It can surely be applied if the data on inter-industry transactions are organized in the form of input-output accounts, and the computations are performed in block matrix environment. In fact, the measurement of the number of production stages or the length of production chains has attracted the interest of many input-output economists. The idea of simultaneously counting and weighting the number of inter-industry transactions was formalized by Dietzenbacher et al. (2005). Their “average propagation length” (APL) is the average number of steps it takes an exogenous change in one industry to affect the value of production in another industry. It is the APL concept on which we build the count of the number of production stages from the petrochemical plant to its consumers in our simplified example above. The only difference is that Dietzenbacher et al. (2005), and many authors in the follow-up studies, neglect the completion stage. First applications of the APL concept to measure the length of cross-border production chains appear in Dietzenbacher and Romero (2007) and Inomata (2008), though Oosterhaven and Bouwmeester (2013) warn that the APL should only be used to compare pure interindustry linkages and not to compare different economies or different industries.

Fally (2011, 2012) proposes the recursive definitions of two indices that quantify the “average number of embodied production stages” and the “distance to final demand”.  Miller and Temurshoev (2015), by analogy with Antras et al. (2012), use the logic of the APL and derive the measures of “output upstreamness” and “input downstreamness” that indicate industry relative position with respect to the nal users of outputs and initial producers of inputs. They show that their measures are mathematically equivalent to those of Fally and the well known indicators of, respectively, total forward linkages and total backward linkages. Fally (2012) indicates that the average number of embodied production stages may be split to account for the stages taking place within the domestic economy and abroad. This approach was implemented in OECD (2012), De Backer and Miroudot (2013) and elaborated in Miroudot and Nordstrom (2015).

Ye et al. (2015) generalize previous length and distance indices and propose a consistent accounting system to measure the distance in production networks between producers and consumers at the country, industry and product levels from different economic perspectives. Their “value added propagation length” may be shown to be equal to Fally’s embodied production stages and Miller & Temurshoev’s input downstreamness when aggregated across producing industries.

Finally, Wang et al. (2016) develop a technique of additive decomposition of the average production length. Therefore, they are able to break the value chain into various components and measure the length of production along each component. Their production length index system includes indicators of the average number of domestic, cross-border and foreign production stages. They also propose new participation and production line position indices to clearly identify where a country or industry is in global value chains. Importantly, Wang et al. (2016) clearly distinguish between average production length and average propagation length, and between shallow and deep global value chains.

This paper builds on the technique and ideas of Wang et al. (2016) and the derivation of the weighted average number of border crossings by Muradov (2016). It re-invents a holistic system of analytical indicators of structure and length of value chains. As in Wang et al. (2016), global value chains are treated here within a wider economy context and are juxtaposed with domestic value chains. This enables developing new indices of orientation towards global value chains. The novel deliverables of this paper are believed to include the following. First, all measurements are developed with respect to output rather than value added or final product  flows. This is superior for interpretation and visualization purposes because a directly observable economic variable ( output ) is decomposed in both directions, forwards to the destination and backwards to the origin of value chain. It is also shown that at a disaggregate country-industry level, the measurement of production length is equivalent with respect to value added and output. Second, the decomposition of output builds on a factorization of the Leontief and Ghosh inverse matrices that allows for an explicit count of production stages within each detailed component. Third, the system builds on a refined classication of production stages, including final and primary production stages that are often neglected in similar studies. Fourth, the paper re-designs the average production line position index and proposes new indices of orientation towards global value chains that, hopefully, avoid overemphasizing the length of some unimportant cross-border value chains. Fifth, a new chart is proposed for the visualization of both structure and length of value chains. The chart provides an intuitive graphical interpretation of the GVC participation, orientation and position indices.

It is also worth noting that both Wang et al. (2016) and this paper propose similar methods to estimate the intensity of GVC-related production in partner countries and across borders. This is not possible with previous decomposition systems without explicitly counting the average number of production stages and border crossings.

 

 Key Terms:

  • Average Propagation Length
  • National Boundaries
  • Networks
  • Value Chains
  • Supply Chains
  • Upstreamness
  • Downstreamness
  • Structure of Chains
  • Smile Curves
  • Vertical Specialization
  • Fragmentation of Production
  • Shock Amplifiers
  • Shock Absorbers
  • Production Sharing
  • World Input Output Chains
  • WIOD
  • Counting Boundary Crossings
  • Production Staging
  • Slicing Up Value Chains
  • Mapping Value Chains
  • Geography of Value Chains
  • Spatial Economy

Key Sources of Research:

 

 

Characterizing Global Value Chains

Zhi Wang

Shang-Jin Wei

Xinding Yu and Kunfu Zhu

GLOBAL VALUE CHAIN DEVELOPMENT REPORT 2016
Background Paper Conference

Beijing, 17-18 March 2016

https://schar.gmu.edu/sites/default/files/faculty-staff/cv/Characterizing_Global_Value_Chains.pdf

 

 

The Great Trade Collapse: Shock Amplifiers and Absorbers in Global Value Chains

Zhengqi Pan

2016

http://gpn.nus.edu.sg/file/Zhengqi%20Pan_GPN2016_008.pdf

 

 

CHARACTERIZING GLOBAL VALUE CHAINS:PRODUCTION LENGTH AND UPSTREAMNESS

Zhi Wang
Shang-Jin Wei
Xinding Yu
Kunfu Zhu
March 2017

http://www.nber.org/papers/w23261.pdf

 

 

 

Characterizing Global Value Chains

Zhi Wang
Shang-Jin Wei,
Xinding Yu and Kunfu Zhu

September 2016

http://cepr.org/sites/default/files/Wang,%20Zhi.pdf

https://www.gtap.agecon.purdue.edu/resources/download/8178.pdf

 

 

MEASURING AND ANALYZING THE IMPACT OF GVCs ON ECONOMIC DEVELOPMENT

GLOBAL VALUE CHAIN DEVELOPMENT REPORT 2017

International Bank for Reconstruction and Development/The World Bank
2017

https://www.brookings.edu/wp-content/uploads/2017/07/tcgp-17-01-china-gvcs-complete-for-web-0707.pdf

 

 

 

Global Value Chains

http://www.coris.uniroma1.it/sites/default/files/Lecture%20Global%20Value%20Chains.pdf

 

 

MAPPING GLOBAL VALUE CHAINS

4-5 December 2012
The OECD Conference Centre, Paris

https://www.oecd.org/dac/aft/MappingGlobalValueChains_web_usb.pdf

 

 

 

Structure and length of value chains

Kirill Muradov

http://www.gws-os.com/downloads/ioworkshop/IO-Workshop-2017_Muradov_abstract.pdf

http://gws-os.com/downloads/ioworkshop/IO-Workshop-2017_Muradov_ppt.pdf

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3054155

 

Production Staging: Measurement and Facts

Thibault Fally

August 2012

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.717.7092&rep=rep1&type=pdf

 

 

 

TRACING VALUE-ADDED AND DOUBLE COUNTING IN GROSS EXPORTS

Robert Koopman
Zhi Wang
Shang-Jin Wei

November 2012

https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/5852/w18579.pdf

 

 

 

GIVE CREDIT WHERE CREDIT IS DUE: TRACING VALUE ADDED IN GLOBAL PRODUCTION CHAINS

Robert Koopman
William Powers
Zhi Wang
Shang-Jin Wei

September 2010

https://www.bea.gov/about/pdf/NBER%20working%20paper_1.pdf

 

 

 

Measuring the Upstreamness of Production and Trade Flows

By Pol Antràs, Davin Chor, Thibault Fally, and Russell Hillberry

2012

http://scholar.harvard.edu/files/antras/files/acfh_published.pdf

http://www.nber.org/papers/w17819.pdf

 

 

 

Using Average Propagation Lengths to Identify Production Chains in the Andalusian Economy

 

https://idus.us.es/xmlui/bitstream/handle/11441/17372/file_1.pdf?sequence=1&isAllowed=y

 

 

Production Chains in an Interregional Framework: Identification by Means of Average Propagation Lengths

 2007

 

http://journals.sagepub.com/doi/abs/10.1177/0160017607305366

 

 

 

Vertical Integration and Input Flows

Enghin Atalay

Ali Hortaçsu

Chad Syverson

2013

http://faculty.chicagobooth.edu/chad.syverson/research/verticalownership.pdf

 

 

 

The Rise of Vertical Specialization Trade

Benjamin Bridgman

January 2010

https://www.bea.gov/papers/pdf/the_rise_of_vertical_specialization_trade_bridgman_benjamin.pdf

 

 

 

THE NATURE AND GROWTH OF VERTICAL SPECIALIZATION IN WORLD TRADE

David Hummels
Jun Ishii
Kei-Mu Yi*

March 1999

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.475.3874&rep=rep1&type=pdf

 

 

Accounting for Intermediates: Production Sharing and Trade in Value Added

Robert C. Johnson

Guillermo Noguera

First Draft: July 2008
This Draft: June 2009

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.211.9707&rep=rep1&type=pdf

First Draft: July 2008
This Draft: May 2011

http://siteresources.worldbank.org/INTRANETTRADE/Resources/Internal-Training/287823-1256848879189/6526508-1283456658475/7370147-1308070299728/7997263-1308070314933/PAPER_4_Johnson_Noguera.pdf

 

 

 

FRAGMENTATION AND TRADE IN VALUE ADDED OVER FOUR DECADES

Robert C. Johnson
Guillermo Noguera

June 2012

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.679.6227&rep=rep1&type=pdf

 

 

 

Can Vertical Specialization Explain The Growth of World Trade

Kei-Mu Yi

1999

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr96.pdf

 

 

CAN MULTI-STAGE PRODUCTION EXPLAIN THE HOME BIAS IN TRADE?

Kei-Mu Yi

Federal Reserve Bank of Philadelphia
June 2008
This revision: November 2008

https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2008/wp08-12r.pdf?la=en

 

 

 

Global Value Chains: New Evidence for North Africa

D. Del Prete, G. Giovannetti, E. Marvasi

2016

https://www.disei.unifi.it/upload/sub/pubblicazioni/repec/pdf/wp07_2016.pdf

 

 

 

Slicing Up Global Value Chains

Marcel Timmera Abdul Erumbana Bart Losa
Robert Stehrerb Gaaitzen de Vriesa

Presentation at International Conference on Global Value Chains and
Structural Adjustments,

Tsinghua University, June 25, 2013

http://www.rug.nl/ggdc/docs/session4_timmer.pdf

 

 

 

On the Geography of Global Value Chains

Pol Antràs

Alonso de Gortari

May 24, 2017

https://scholar.harvard.edu/files/antras/files/gvc_ag_latest_draft.pdf

 

 

Counting Borders in Global Value Chains

Posted: 12 Jul 2016

Last revised: 29 Aug 2016

Kirill Muradov

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808130

 

 

Determinants of country positioning in global value chains

Kirill Muradov

May 2017

https://www.iioa.org/conferences/25th/papers/files/2932_20170627121_Muradov2017_countrypositioninGVC_1.1.pdf

 

 

THE CONSTRUCTION OF WORLD INPUT–OUTPUT TABLES IN THE WIOD PROJECT

ERIK DIETZENBACHERa*, BART LOSa, ROBERT STEHRERb, MARCEL TIMMERa and GAAITZEN DE VRIES

2013

 

https://unstats.un.org/unsd/trade/events/2014/mexico/documents/session6/WIOD%20construction.pdf

 

 

 

 

On the fragmentation of production in the us

Thibault Fally

July 2011

http://www.etsg.org/ETSG2011/Papers/Fally.pdf

http://voxeu.org/article/has-production-become-more-fragmented-international-vs-domestic-perspectives

A New Measurement for International Fragmentation of the Production Process: An International Input-Output Approach

Inomata, Satoshi

http://www.ide.go.jp/English/Publish/Download/Dp/175.html

Output Upstreamness and Input Downstreamness of Industries/Countries in World Production

Ronald E. Miller

Umed Temurshoev

 

Date Written: July 9, 2015

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2700845

Input-Output Calculus of International Trade

Kirill Muradov

 

Date Written: June 1, 2015

Posted: 9 Sep 2015 Last revised: 5 Oct 2015

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2643098

 

 

 

 Made in the World?

S. Miroudot

Hakan Nordstrom

Date Written: September 2015

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658562

 

 

 

The Average Propagation Length Conflicting Macro, Intra-industry, and Interindustry Conclusions

October 2013
Jan Oosterhaven

Maaike C. Bouwmeester

https://www.researchgate.net/publication/258142955_The_Average_Propagation_Length_Conflicting_Macro_Intra-industry_and_Interindustry_Conclusions

 

 

 

Accounting Relations in Bilateral Value Added Trade

Robert Stehrer

May 2013

https://wiiw.ac.at/accounting-relations-in-bilateral-value-added-trade-dlp-3021.pdf

Whither Panama? Constructing a Consistent and Balanced World SUT System including International Trade and Transport Margins

Robert Stehrer

https://wiiw.ac.at/whither-panama-constructing-a-consistent-and-balanced-world-sut-system-including-international-trade-and-transport-margins-dlp-2905.pdf

https://wiiw.ac.at/p-2905.html

Quantifying International Production Sharing at the Bilateral and Sector Levels

Zhi Wang, Shang-Jin Wei, Kunfu Zhu

NBER Working Paper No. 19677
Issued in November 2013, Revised in March 2014

http://www.nber.org/papers/w19677

Measuring Smile Curves in Global Value Chains

Ming YE, Bo MENG , and Shang-jin WEI

August 2015

http://www.ide.go.jp/English/Publish/Download/Dp/530.html

 

 

 

 FOLLOW THE VALUE ADDED: BILATERAL GROSS EXPORT ACCOUNTING

by Alessandro Borin and Michele Mancini

2015

 

http://www.bancaditalia.it/pubblicazioni/temi-discussione/2015/2015-1026/en_tema_1026.pdf

Intra Industry Trade and International Production and Distribution Networks

Intra Industry Trade and International Production and Distribution Networks

 

Inter Industry Trade is known as One way Trade.

Intra Industry Trade is known as Two way Trade.

 

Intra Industry Trade (IIT)

  • Can be Intra Firm or Inter Firm (Arms’ Length)
  • Can be Vertical or Horizontal (VIIT and HIIT)

Intra Industry Trade is measured using G-L Index among other indices.

Import and Export of Parts and Components (Intermediate Goods) causes measurement issues of IIT.

 

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

Intra-industry trade is defined as the simultaneous export and import of products, which belong to the same statistical product category. According to Kol and Rayment (1989), three types of bilateral trade flows may occur between countries: inter-industry trade, horizontal IIT and vertical IIT. Historically, the international trade between countries has been inter-industry form, which is described as the exchange of products belonging to different industries. Traditional trade models, such as Heckscher-Ohlin model or Ricardian model, have tried to explain this type of trade based on comparative advantage in relative technology and factor endowments. However, a significant portion of the world trade over the last three decades took the form of the intra-industry trade rather than inter-industry trade. As a result, the traditional trade models has been considered to be inadequate in explaining this new trade pattern because in these models there is no reason for developed countries to trade in similar but slightly differentiated goods.

 

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

Horizontal IIT has been defined as the exchange of similar goods that are similar in terms of quality but have different characteristics or attributes. The models developed by Dixit and Stiglitz (1977), Lancaster (1980), Krugman (1980, 1981), Helpman (1981), and Helpman and Krugman (1985) explain horizontal IIT by emphasizing the importance of economies of scale, product differentiation, and demand for variety within the setting of monopolistic competition type markets. In these models, IIT in horizontally differentiated goods should be greater, the greater the difference in income differences and relative factor endowments between the trading partners.

 

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

In contrast, vertical IIT represents trade in similar products of different qualities but they are no longer the same in terms unit production costs and factor intensities.5 Falvey (1981) and Falvey and Kierzkowski (1987) have shown that the IIT in vertically differentiated goods occurs because of factor endowment differences across countries. In particular, Falvey and Kierzkowski (1987) suggest that the amount of capital relative to labor used in the production of vertically differentiated good indicates the quality of good. As a consequence, in an open economy, higher- quality products are produced in capital abundant countries whereas lower-quality products are produced in labor abundant countries. This will give rise to intra-industry trade in vertically differentiated goods: the capital abundant country exports higher-quality varieties and labor abundant country exports lower-quality products. The models of vertical IIT predict that the share of vertical IIT will increase as countries’ income and factor endowments diverge.

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

Various ways of calculating intra-industry trade have been proposed in the empirical literature, including the Balassa Index, the Grubel-Lloyd (G-L) index, the Aquino index. The most widely used method for computing the IIT is developed by Grubel and Lloyd (1971). However, beside aggregation bias, the traditional G-L index has one major problem often cited in the empirical literature. The unadjusted G-L index is negatively correlated with a large overall trade imbalance. With national trade balances, the level of IIT in a country will be clearly underestimated. To avoid this problem, Grubel and Lloyd (1975) proposed another method to adjust the index by using the relative size of exports and imports of a particular good within an industry as weights.

 

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

iit

 

From Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

IIT2IIT3IIT4

 

From:  World Trade Flows Characterization: Unit Values, Trade Types and Price Ranges

 

IIT5

 

 

Key Terms:

  • Intra Industry Trade
  • Inter Industry Trade
  • Horizontal IIT
  • Vertical IIT
  • Ricardo’s Theory of Comparative Advantage
  • Factor Inputs
  • Factor Endowments
  • Factor Prices
  • Heckscher-Ohlin Model of Trade
  • Stolper-Samuelson Theorem
  • Grubel – Lloyd Index
  • Fontagné and Freudenberg index (FF)
  • New Economic Geography (NEG)
  • Spatial Economy
  • UN COMTRADE
  • SITC Codes
  • Balassa Index
  • Acquino Index
  • Bilateral Trade Flows

 

Please see my related posts:

Understanding Trade in Intermediate Goods

Trends in Intra Firm Trade of USA

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

Relational Turn in Economic Geography

Understanding Global Value Chains – G20/OECD/WB Initiative

 

 

Key Sources of Research:

 

 

International Production and Distribution Networks in East Asia:  Eighteen Facts, Mechanics, and Policy Implications

Fukunari Kimura

2006

http://www1.doshisha.ac.jp/~ccas/eng/Eseminars/e2007-11b.pdf

 

 

 

The Formation of International Production and Distribution Networks in East Asia

 

Mitsuyo Ando and Fukunari Kimura

 

http://www.nber.org/chapters/c0194.pdf

 

 

“The mechanics of production networks in Southeast Asia: the fragmentation theory approach”

Fukunari Kimura

July 2007

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.600.7481&rep=rep1&type=pdf

 

 

 

“Fragmentation in East Asia: Further Evidence”

May 2006

Mitsuyo Ando

Fukunari Kimura

http://venus.unive.it/mvolpe/Articolo%204.pdf

 

 

 

Modern International Production and Distribution Networks: the Role of Global Value Chains

Fukunari Kimura

2016

https://www.cepchile.cl/cep/site/artic/20161006/asocfile/20161006141226/presentation_fukunari_kimura.pdf

 

 

 

Two-dimensional Fragmentation in East Asia: Conceptual Framework and Empirics

Fukunari Kimura and Mitsuyo Ando

http://www.computer-services.e.u-tokyo.ac.jp/p/seido/output/Ishikawa/046.pdf

 

 

 

Deepening and Widening of Production Networks in ASEAN

Ayako Obashi

Fukunari Kimura

2016

http://www.eria.org/ERIA-DP-2016-09.pdf

 

Global production sharing and trade patterns in East Asia

Prema-chandra Athukorala

June 2013

http://www.waseda.jp/gsaps/eaui/educational_program/PDF_2/TU_VIROT,%20Ali_Reading2_Global%20Production%20Sharing%20and%20Trade%20Patterns%20in%20East%20Asia.pdf

 

 

 

PRODUCTION SHARING IN EAST ASIA: CHINA’S POSITION, TRADE PATTERN AND TECHNOLOGY UPGRADING

Laike Yang

http://unctad.org/en/PublicationChapters/gdsmdp20152yang_en.pdf

 

 

 

 

International Production Networks:  Contributions of Economics to Policy Making

Fukunari Kimura

2016

https://www.jstage.jst.go.jp/article/internationaleconomy/19/0/19_ie2016.03.fk/_pdf

 

 

 

 

Production networks in East Asia: What we know so far

Fukunari Kimura and Ayako Obashi

No. 320
November 2011

https://www.econstor.eu/bitstream/10419/53625/1/67543923X.pdf

 

Structure and Determinants of Intra-Industry Trade in the U.S. Auto-Industry

Kemal Turkcan and Aysegul Ates

2010

 

http://www2.southeastern.edu/orgs/econjournal/index_files/JIGES%20DECEMBER%202009%20TURKCAN%203-10-2010%20Turkcan_Ates_JIGES.pdf

 

 

 

Vertical Intra-Industry Trade: An Empirical Examination of the U.S. Auto-Parts Industry

Kemal TÜRKCAN and Ayşegül ATEŞ

(This version October 2008)

 

http://www.etsg.org/ETSG2008/Papers/Turkcan.pdf

 

 

 

Intra-industry trade, fragmentation and export margins: An empirical examination of sub-regional international trade

Yushi Yoshida

 

https://www.iseg.ulisboa.pt/aquila/getFile.do?method=getFile&fileId=501284

 

 

A Practical Guide to Trade Policy Analysis

WTO

https://www.wto.org/english/res_e/publications_e/wto_unctad12_e.pdf

 

 

 

Intra-Industry Trade between Japan and European Countries: a Closer Look at the Quality Gap in VIIT

Yushi Yoshida, Nuno Carlos Leitão and Horácio Faustino

http://pascal.iseg.utl.pt/~depeco/wp/wp532008.pdf

 

 

Evolving pattern of intra-industry trade specialization of the new Member States (NMS) of the EU: the case of automotive industry

Elżbieta Kawecka-Wyrzykowska

2008

 

http://ec.europa.eu/economy_finance/publications/pages/publication14289_en.pdf

 

 

VERTICAL AND HORIZONTAL INTRA-INDUSTRY TRADE BETWEEN THE U.S. AND NAFTA PARTNERS

2009

 

http://www.scielo.cl/pdf/rae/v24n1/art02.pdf

 

 

 

Globalizing Production Structure and Intra-Industry Trade: The Case of Turkey

Emine Kılavuz

Hatice Erkekoğlu

Betül Altay Topcu

2013

https://www.econjournals.com/index.php/ijefi/article/viewFile/563/pdf

 

 

 

On the Measurement of Vertical and Horizontal Intra-Industry Trade: A Geometric Exposition

A.K.M. Azhar Robert J.R. Elliott

http://www.ibrarian.net/navon/paper/On_the_Measurement_of_Vertical_and_Horizontal_Int.pdf?paperid=1018522

 

 

 

 Determinants of United States’ Vertical and Horizontal Intra-Industry Trade

2013

 

https://espace.curtin.edu.au/bitstream/handle/20.500.11937/41590/197560_110710_GEJ_2013.pdf?sequence=2

 

 

 

World Trade Flows Characterization: Unit Values, Trade Types and Price Ranges

Charlotte Emlinger & Sophie Piton

2014

http://www.cepii.fr/PDF_PUB/wp/2014/wp2014-26.pdf

Understanding Trade in Intermediate Goods

Understanding Trade in Intermediate Goods

 

One of the key source of International Trade statistics is a document published by the UNCTAD since 2013:

Key Statistics and Trends in International Trade

Please see references below to access reports for 2015 and 2016.

 

In 2014, out of USD 18.5 trillion in global trade, about USD 8 trillion was in intermediate goods.

 

From TRADE IN INTERMEDIATE GOODS AND SERVICES

Introduction: the international dimension of the exchange of intermediate inputs

1. Trade in intermediate inputs has been steadily growing over the last decade. However, despite the internationalisation of production and the increasing importance of outsourcing and foreign investment, some studies have found little rise in intermediate goods trade as a share of total trade1. More than half of goods trade is however made up of intermediate inputs and trade in services is even more of an intermediate type with about three quarters of trade flows being comprised of intermediate services. Trade in intermediate goods and services thus deserves special attention from trade policymakers and so far few studies have investigated how it differs from trade in consumption goods or services.

2. An intermediate good can be defined as an input to the production process that has itself been produced and, unlike capital, is used up in production3. The difference between intermediate and capital goods lies in the latter entering as a fixed asset in the production process. Like any primary factor (such as labour, land, or natural resources) capital is used but not used up in the production process4. On the contrary, an intermediate good is used, often transformed, and incorporated in the final output. As an input, an intermediate good has itself been produced and is hence defined in contrast to a primary input. As an output, an intermediate good is used to produce other goods (or services) contrary to a final good which is consumed and can be referred to as a “consumption good”.

3. Intermediate inputs are not restricted to material goods; they can also consist of services. Thelatter can be potentially used as an input to any sector of the economy; that is for the production of the same, or other services, as well as manufacturing goods. Symmetrically, manufacturing goods can be potentially used to produce the same, or other manufacturing goods, as well as services.

4. An important question we can ask is how to identify inputs among all goods and services produced in an economy. Many types of goods can be easily distinguished as inputs, when their use excludes them from final consumption. Notable examples include chemical substances, construction materials, or business services. The exact same type of good used as an input to some production process can however be destined to consumption. For instance, oranges can be sold to households as a final good, as well as to a factory as an input for food preparation. Telecommunication services can be sold to individuals or to business services firms as an intermediate input for their output. The United Nations distinguish commodities in each basic heading on the basis of the main end-use (United Nations, 2007). It is however recognized that many commodities that are traded internationally may be put to a variety of uses. Other methodologies involve the use of input-output (I-O) tables to distinguish between intermediate and consumption goods.

5. The importance of intermediate goods and services in the economy and trade is associated with a number of developments in the last decades. Growth and increased sophistication of production has given birth to strategies involving fragmentation and reorganisation of firm’s activities, both in terms of ownership boundaries, as in terms of the location for production. In what follows, the international dimension of the exchange of intermediate goods and services is explored by clarifying terms and concepts as well as the links between trade in intermediate inputs and FDI.

From Key Statistics and Trends in International Trade 2015

inter8

 

From Key Statistics and Trends in International Trade 2015

inter2

 From Key Statistics and Trends in International Trade 2015

inter3

From Key Statistics and Trends in International Trade 2015

inter4

From Key Statistics and Trends in International Trade 2015

inter

From Key Statistics and Trends in International Trade 2015

inter5

From Key Statistics and Trends in International Trade 2015

inter6

From Key Statistics and Trends in International Trade 2015

inter7

From Key Statistics and Trends in International Trade 2015

Trade networks relating to global value chains have evolved during the last 10 years. In 2004, the East Asian production network was still in its infancy. Most trade flows of parts and components concerned the USA and the European Union, with a number of other countries loosely connected with these two main hubs. As of 2014 trade of parts and components was much more developed. The current state is characterized not only by the prominent role of China, but also by a much more tightly integrated network with a much larger number of countries many of which have multiple connections to different hubs.

From Mapping Global Value Chains: Intermediate Goods Trade and Structural Change in the World Economy

inter10inter11inter12

Key sources of Research:

 

TRADE IN INTERMEDIATE GOODS AND SERVICES

OECD Trade Policy Working Paper No. 93
by Sébastien Miroudot, Rainer Lanz and Alexandros Ragoussis

2009

https://www.oecd.org/trade/its/44056524.pdf

 

 

An Essay on Intra-Industry Trade in Intermediate Goods

Rosanna Pittiglio

2014

http://file.scirp.org/pdf/ME_2014051916452646.pdf

 

 

The Rise of International Supply Chains: Implications for Global Trade

http://www3.weforum.org/docs/GETR/2012/GETR_Chapter1.2.pdf

 

 

 

Growing Trade in Intermediate Goods: Outsourcing, Global Sourcing or Increasing
Importance of MNE Networks?

by
Jörn Kleinert
October 2000

https://www.ifw-kiel.de/ifw_members/publications/growing-trade-in-intermediate-goods-outsourcing-global-sourcing-or-increasing-importance-of-mne-networks/kap1006.pdf

 

 

 

Imported Inputs and the Gains from Trade

Ananth Ramanarayanan
University of Western Ontario
September, 2014

https://www.economics.utoronto.ca/index.php/index/research/downloadSeminarPaper/49816

 

 

 

Key Statistics and Trends in International Trade 2015

Division on International Trade in Goods and Services, and Commodities
United Nations Conference on Trade and Development

http://unctad.org/en/PublicationsLibrary/ditctab2015d1_en.pdf

 

 

 

Key Statistics and Trends in International Trade 2016

Division on International Trade in Goods and Services, and Commodities
United Nations Conference on Trade and Development

http://unctad.org/en/PublicationsLibrary/ditctab2016d3_en.pdf

 

 

Integration of Trade and Disintegration of Production in the Global Economy

Robert C. Feenstra
Revised, April 1998

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.39.7178&rep=rep1&type=pdf

 

 

 

GLOBAL VALUE CHAINS: CHALLENGES, OPPORTUNITIES, AND IMPLICATIONS FOR POLICY

OECD, WTO and World Bank Group
Report prepared for submission to the G20 Trade Ministers Meeting Sydney, Australia, 19 July 2014

https://www.oecd.org/tad/gvc_report_g20_july_2014.pdf

 

 

Trade in Value Added: Concepts, Estimation and Analysis

Marko Javorsek* and Ignacio Camacho

20015

http://www.unescap.org/sites/default/files/AWP150Trade%20in%20Value%20Added.pdf

 

 

The Similarities and Differences among Three Major Inter-Country Input-Output Databases and their Implications for Trade in Value-Added Estimates

Lin Jones and Zhi Wang, United States International Trade Commission Li Xin, Beijing Normal University and Peking University Christophe Degain, World Trade Organization

December, 2014

https://www.usitc.gov/publications/332/ec201412b.pdf

 

 

Advanced Topics in Trade
Lecture 9 – Multinational Firms and Foreign Direct Investment

Heiwai Tang – SAIS
April 8, 2015

http://www.hwtang.com/uploads/3/0/7/2/3072318/lecture_8_new.pdf

 

 

Efforts to Measure Trade in Value-Added and Map Global Value Chains: A Guide

Andrew Reamer

May 29, 2014

https://gwipp.gwu.edu/files/downloads/Reamer_ISA_Trade_in_Value_Added_05-29-2014.pdf

 

 

 

Global Value Chains for Value Added and Intermediate Goods in Asia

N Shrestha

20015

http://www.econ.ynu.ac.jp/cessa/publication/pdf/CESSA%20WP%202015-07.pdf

 

 

 

Global Value Chains: The New Reality of International Trade

Sherry Stephenson
December 2013

http://e15initiative.org/wp-content/uploads/2015/09/E15-GVCs-Stephenson-Final.pdf

 

 

Asia and Global Production Networks Implications for Trade, Incomes and Economic Vulnerability

Benno Ferrarini

David Hummels

20014

https://www.adb.org/sites/default/files/publication/149221/asia-and-global-production-networks.pdf

 

 

Participation of Developing Countries in Global Value Chains:
Implications for Trade and Trade-Related Policies

by
Przemyslaw Kowalski, Javier Lopez Gonzalez, Alexandros Ragoussis
and Cristian Ugarte

https://www.die-gdi.de/uploads/media/OECD_Trade_Policy_Papers_179.pdf

 

 

GLOBAL VALUE CHAINS: SURVEYING DRIVERS, MEASURES AND IMPACTS

João Amador
Sónia Cabral

2014

https://www.bportugal.pt/sites/default/files/anexos/papers/wp20143.pdf

 

World Intermediate goods Exports By Country and Region

2014

WITS World International Trade Statistics

http://wits.worldbank.org/CountryProfile/en/Country/WLD/Year/2014/TradeFlow/Export/Partner/all/Product/UNCTAD-SoP2

 

 

Trade in global value chains

2013

WTO

https://www.wto.org/english/res_e/statis_e/its2013_e/its13_highlights4_e.pdf

 

 

The Rise of Trade in Intermediates: Policy Implications

  • February 10, 2011

http://carnegieendowment.org/2011/02/10/rise-of-trade-in-intermediates-policy-implications-pub-42578

 

 

International trade with intermediate and final goods under economic crisis

Elżbieta Czarny, Warsaw School of Economics
Paweł Folfas, Warsaw School of Economics
Katarzyna Śledziewska, Warsaw University

http://www.etsg.org/ETSG2012/Programme/Papers/375.pdf

 

 

 

Trade in Intermediate Goods: Implications for Productivity and Welfare in Korea

Young Gui Kim

Hak K. PYO

Date Written: December 30, 2016

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2929118

 

 

Growing Together: Economic Ties between the United States and Mexico

BY CHRISTOPHER WILSON

https://www.wilsoncenter.org/sites/default/files/growing_together_economic_ties_between_the_united_states_and_mexico.pdf

 

 

Mapping Global Value Chains: Intermediate Goods Trade and Structural Change in the World Economy

Timothy J. Sturgeon
Olga Memedovic

https://www.unido.org/fileadmin/user_media/Publications/Research_and_statistics/Branch_publications/Research_and_Policy/Files/Working_Papers/2010/WP%2005%20Mapping%20Glocal%20Value%20Chains.pdf

 

India’s Intermediate Goods Trade in the Inter Regional Value Chain:
An examination based on Trade data and Input Output Analysis

Simi Thambi

https://www.jsie.jp/Annual_Meeting/2013f_Yokohoma_n_Univ/pdf/10_2%20fp.pdf

 

Global Supply Chains

https://www.usitc.gov/publications/332/pub4253_2.pdf

 

 

Global value chains in a changing world

Edited by Deborah K. Elms and Patrick Low

https://www.wto.org/english/res_e/booksp_e/aid4tradeglobalvalue13_e.pdf

 

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

 

There is a need for holistic/systemic understanding of causal relations among

  • Low Economic Growth
  • Low Real Long Term Interest Rates
  • Decreased Business Investment
  • Mergers and Acquisitions Activity
  • Industry Concentration
  • Decreased Competition
  • Rising Profits
  • Income Inequality
  • Shareholder Capitalism
  • Dividends Payouts
  • Buyback of Shares
  • Superstar Firms
  • Too Big to Fail
  • Oligopoly Economy / Oligarchy
  • Decreased Number of Stocks/Equities
  • Focus on Costs Minimization
  • Increased Outsourcing
  • Global Value Chains
  • Free Trade Agreements
  • Market Power (Increased Market Share)
  • Decreased Dynamism
  • Herding by Suppliers
  • Labor Vs Executive Compensation
  • Unemployment
  • Concentration in Occupations

And don’t forget managerial focus on

  • Economic Value Added (EVA) since 1990s

 

There are two views to look at these issues

  • Aggregated View – Corporate Agglomeration and Spatial Dispersion / Extension
  • Disaggregated View – Micro Motives, Macro Behavior ( Bottom up Agent based view)

 

As the research papers below indicate, the scholarship is recent and need much more attention by the Economists and Policy makers.

 

From Is There a Connection Between Market Concentration and the Rise in Inequality?

The rise in wealth and income inequality has been at the forefront of the political debate in the U.S. in the last few years. At the same time, issues like market power and concentration, bigness, and antitrust have also come back into prominence, propelled by a growing body of research that points to diminishing competition across multiple American industries.

The possible connection between inequality and market concentration, however, has been relatively understudied for many years—until recent years, that is, when a sheafof new studies examining the interactions between concentration, market power, and inequality began to appear.

A 2015 paper by Jonathan Baker and Steven Salop, for instance, examined the connection between inequality and market power and argued that “because the creation and exercise of market power tend to raise the return to capital, market power contributes to the development and perpetuation of inequality.” Harvard Law School’s Einer Elhauge also found that horizontal shareholding likely leads to anti-competitive price raises and has regressive effects. Daniel Crane of the University of Michigan, however, contends that the connection between antitrust and wealth inequality has been grossly oversimplified by advocates of tougher antitrust enforcement.

Asked if there was a connection between concentration and inequality, Chicago Booth professors Austan Goolsbee, Steven Kaplan, and Sam Peltzman pointed to data being inconclusive. Goolsbee said: “Probably [there is a connection]. But we don’treally know more than correlations at this point.” Kaplan said his own research “suggests that winner-take-all markets (driven by technology and scale) play a rolein inequality. However, they may not play the most important role.” And Peltzmansaid that “The timing suggests so, but there are a lot of unconnected dots in this question.”

Is rising inequality connected to monopolies, rent-seeking, and concentration, or is it a result of larger forces like globalization and technology? Can antitrust be used effectively to mitigate inequality, or is concentration a sign of greater efficiency? These questions, and others, were debated by economists and legal scholars during a panel at the recent Stigler Center conference on concentration in America.

The panel featured Peter Orszag, Vice Chairman and Managing Director of the financial advisory and asset management firm Lazard Freres; Justin Pierce, a Senior Economist at the Board of Governors of the Federal Reserve; Lina Khan, a fellow at Open Markets program at New America; Sabeel Rahman, an Assistant Professor of Law at Brooklyn Law School; Simcha Barkai, a PhD Candidate at the University of Chicago Booth School of Business; and German Gutierrez, a PhD Candidate at the New York University Stern School of Business. The panel was moderated by Matt Stoller of the Open Markets program at New America, who opened by observing that “a new kind of Brandeis School of antitrust is emerging, in terms of thinking about political economy.”

Much of the panel focused on the dramatic rise in corporate profits. A recent, much-discussed Stigler Center working paper by Simcha Barkai found that over the past 30 years, as labor’s share of output fell by 10 percent, the capital share declined even further. This finding goes against the argument that the labor share went down due to technological changes, or as Barkai put it: “We used to spend money on people, today we’re spending money on robots.”

Barkai’s paper finds no evidence to support the technological argument. “We’re spending less on all inputs. If you think of this from the perspective of a firm, this is terrific. After accounting for all of my costs—material inputs, workers, capital—I am left with a large amount of money, much more so than in the past.” What Barkai does find, however, is that profits have gone way up. From 1984 to 2014, the profit share increased from 2.5 percent of GDP to 15 percent.

“To give you a sense of how large these profits are, if you look over the past 30 years and you ask, ‘How much have profits increased?’ you can give a number in dollars. A better way to think about that is, “Per worker, how much have these dollars increased?” It’s about $14,000 per worker. That’s a really large number because, in 2014, personal median income was just over $28,000. It’s about half of personal median income,” said Barkai.

Barkai went on to say that these findings were more pronounced in industries that experienced an increase in concentration. “Those industries that have a large increase in concentration also have larger declines in the labor share,” he said. Barkai’s conclusions were echoed by a separate study that was recently published by David Autor, David Dorn, Lawrence Katz, Christina Patterson, and John Van Reenen, in which they found that higher concentration is connected to the fall in the labor share.

One way to consider the question of concentration and inequality, said Pierce, is to look at what happens to firms’ efficiency and markups as a result of a merger. In a recent paper with Bruce Blonigen, Pierce was able to utilize new techniques in order to isolate the effects of mergers in the manufacturing sector. Comparing data from factories that were acquired during mergers to similar factories that weren’t, and to factories where an acquisition has been announced but not yet completed, Pierce and Blonigen found no evidence of the standard argument that mergers benefit consumers by increasing efficiency, reducing production costs, and, in turn, lowering prices. Quite the opposite: they found evidence that mergers increase market power, allowing firms to generate higher profits by raising prices.

“What we find when we do this is that mergers on average are associated with increases in markups in a magnitude of 15 to 50 percent. When we look at the effect on productivity, we actually don’t find a statistically significant effect on productivity associated with mergers,” said Pierce.

Gutierrez, meanwhile, spoke about his 2016 paper with Thomas Philippon, in which the two found that concentrated industries with less entry and more concentration invest less. Before 2000, he explained, firms funneled about 20 cents of every dollar of surplus into investments. Since 2000, however, investments dropped by half—to 10 cents on the dollar.

Their findings, he said, rule out the argument that the drop in investments is related to control by the stock market. The data also rule out other theories, such as financial constraints, safety premiums, or globalization. “What we’re left with is competition, or lack of competition and governance,” said Gutierrez.

“What we find is that most industries have become more concentrated. That leads to a decrease in investment. It means less investment by leaders in particular, and at the industry as a whole. Some manufacturing industries have seen increased competition from China. For the U.S. in particular, we see that leaders invest more. They try and hold onto their position, but the overall effect is somewhat negative on aggregate investment in the U.S.”

How is this drop in investments connected to an increase in concentration? Gutierrez offered two hypotheses: one, that superstar firms, such as digital platforms, are more productive and are therefore capturing more market share. The second, he said, is increased regulation: “In particular, if you look at the cross section of industries, industries where regulation has increased have also tended to become more concentrated and have invested less.”

Orszag, the former head of the Office of Management and Budget and former Director of the Congressional Budget Office, co-authored a 2015 paper with former Obama economic adviser Jason Furman that explored the rise in “supernormal returns on capital” among firms that have limited competition. In the panel, he spoke about what he described as a “dramatic rise” in dispersion among firms in productivity and wages as an understudied driver of inequality.

“In general, if you look at most textbooks on economics and most discussions of public policy, firms are seen as this uninteresting thing that you have to deal with but don’t want to really get into the innards of. Why do some firms behave differently than others? Having now spent a bunch of time in the private sector, the culture in firms really is quite different. Firms do behave differently from one to another beyond just market structure. Within the same market in the same field, Firm A is not the same as Firm B, as people who work inside those firms know.”

Orszag pointed to OECD data that showed that top global firms have been largely exempted from the decline in productivity that advanced economies experienced over the last 10-15 years. “If there’s a structural explanation for that, whether it’s polarization or market structure or innovation, why is it affecting only the laggards in the industry and not those at the frontier? Secondly, why aren’t there more spillovers from the frontier firms within each sector to others? What is happening to the flow of information or the flow of technique or what have you that’s causing this broad, significant rise in productivity deltas across firms, even within the same sector?” he asked.

Orszag also suggested that contrary to media narratives that present growing gaps between CEO wages and median workers within each firm as a prominent driver of inequality, the bulk of the rise in wage gaps is happening between firms, and not within the firms themselves. Studies, he said, show a dramatic increase in between-firm wage inequality “and very little movement except at the very, very largest firms in within-firm inequality.”

Orszag added: “We don’t know exactly what’s causing this. This may be a sorting of workers. It may be sharing of rents in the form of wages for the top firms. It may be a whole variety of different things. What I do suggest is the vast majority of the discussion on income-and-wage inequality seems to just glide over this whole thing as if it doesn’t exist.”

A holistic approach to inequality and concentration

Khan, who in a recent paper with Sandeep Vaheesan explored the role of monopoly and oligopoly power in perpetuating inequality, argued that the way to understand the connection between market concentration and inequality is to take a more holistic approach.

The connection between excessive market concentration and inequality, she said, has been understudied for a long time. “We were really surprised to see that at the time, in 2014, there really wasn’t much research on this connection at all. The most comprehensive paper that we found was from 1975 by William Comanor and Robert Smiley, which found that monopoly power did in fact transfer wealth to the most affluent members of society and suggested that a more competitive economy would have more progressive redistributive effects,” said Kahn. “One way to understand why this connection between market concentration and inequality has been understudied is that the law decided that it wasn’t really important. Once we shifted from an antitrust approach that took a more holistic and multidimensional view of the effect of market power to an approach that privilege means prices, the research on these effects also took a hit.”

In their paper, Khan and Vaheesan argue that inequality not only harms efficiency, but also that firms use their market power to raise prices “above competitive levels to consumers and push prices below competitive levels for small producers.” The paper makes a case for more rigorous enforcement of antitrust laws, arguing that reinvigorating antitrust could be one possible remedy for the regressive redistributive effects of concentration and the political power of monopolies.

“I think at a very basic level, our current political economy reflects 30 years of doing antitrust in a very particular way,” said Khan, who listed several industries such as airlines, healthcare, pharmaceuticals, and telecom, where prices have risen following mergers and industry consolidation.

“New business creation and growth have been on a secular decline. It’s worth recalling that in an earlier era, owning one’s own business was a form of asset building for the middle class, a way of passing on wealth to one’s children. This is especially still true in immigrant communities, where owning your own bodega or your own dry-cleaning service is a path of upward mobility. You can imagine how markets that shut out independent businesses are also effectively closing off that path of asset building,” said Khan.

Khan went on to discuss the political implications of excessive market power and how they can further entrench inequality. “Big firms and concentrated industries enjoy a level of political power that they can use to further entrench their economic dominance. Politics is another vessel by which we see this,” she said.

Rahman, author of the book Democracy Against Domination (Oxford University Press, 2016), also advocated for a wider view of the issue. “When we’re worried about the problem of concentration, I think it goes much broader than the specific areas of mergers and firm size, although that’s a big part of it,” he said.

“When we think about the good things that we want from the economy, we want it to be dynamic, we want it to be innovative, we want it to enable mobility. These things are not natural products. They are a property of the underlying structure of firms, of labor markets, of financial markets, and of policies, including antitrust,” said Rahman, who went on to discuss two aspects of the rise in concentration: digital platforms and the “Uber-ization” of more and more economic sectors, and what he described as a “growing geographic concentration of wealth, income, and opportunity between rural and urban.”

Rahman suggested that other tools, not just antitrust, could be used to combat excessive market power—particularly when it comes to the power of digital platforms. “The way I want to frame this is as a problem of concentration and inequality that warps the structure of opportunity in our economy,” said Rahman. “You have antitrust and public utility law, corporate governance, and labor law as three parts of the larger ecosystem of law and regulation that, coming out of that Progressive era debate about power, were the three complements that together, it was hoped, would produce a high-opportunity, a high-mobility economy that was open to all.”

 

Please also see my related post.

Low Interest Rates and Business Investments : Update August 2017

 

In addition to papers listed above, also see papers and articles mentioned in the references below.

Key sources of Research:

 

Rising Corporate Concentration, Declining Trade Union Power, and the Growing Income Gap: American Prosperity in Historical Perspective

Jordan Brennan

March 2016

 

http://piketty.pse.ens.fr/files/Brennan2016.pdf

They Just Get Bigger: How Corporate Mergers Strangle the Economy

Jordan Brennan

Feb 2017

http://evonomics.com/corporate-mergers-strangle-economy-jordan-brennan/

 The Oligarchy Economy: Concentrated Power, Income Inequality, and Slow Growth

Jordan Brennan

April 2016

http://evonomics.com/the-oligarchy-economy/

Declining Labor and Capital Shares

Simcha Barkai

November 2016

 

https://research.chicagobooth.edu/~/media/5872FBEB104245909B8F0AE8A84486C9.pdf

 

Lack of market competition, rising profits, and a new way to look at the division of income in the United States

Nov 2016

http://equitablegrowth.org/equitablog/lack-of-market-competition-rising-profits-and-a-new-way-to-look-at-the-division-of-income-in-the-united-states/

Rising U.S. business concentration and the decline in labor’s share of income

January 2017

http://equitablegrowth.org/equitablog/rising-concentration-declining-labor-share/

 

Concentrating on the Fall of the Labor Share

By DAVID AUTOR, DAVID DORN, LAWRENCE F. KATZ, CHRISTINA PATTERSON AND JOHN VAN REENEN

January 2017

http://www.nber.org/papers/w23108

Declining Competition and Investment in the U.S.

German Gutierrez and Thomas Philippon

March 2017

https://www8.gsb.columbia.edu/faculty-research/sites/faculty-research/files/finance/Macro%20Lunch/IK_Comp_v1.pdf

 

Dynamism in Retreat:  Consequences for Regions, Markets, and Workers

2017

 

https://eig.org/wp-content/uploads/2017/02/Dynamism-in-Retreat.pdf

 

The Oligopoly Problem

 

NewYorker

 

http://www.newyorker.com/tech/elements/the-oligopoly-problem

 

 

DOES INDUSTRY CONCENTRATION MATTER?

John J. Phelan

2014

Journal of Economics and Economic Education Research, Volume 15, Number 1, 2014

 

 

http://www.alliedacademies.org/articles/does-industry-concentration-matter.pdf

 

 

Increased Concentration of Occupations, Outsourcing, and Growing Wage Inequality in the United States

Elizabeth Weber Handwerker

U.S. Bureau of Labor Statistics

April, 2017

 

http://www.sole-jole.org/17733.pdf

 

 

Measuring occupational concentration by industry

2014

 

https://www.bls.gov/opub/btn/volume-3/pdf/measuring-occupational-concentration-by-industry.pdf

 

 

Rising wage dispersion between white-collar and blue-collar workers and market concentration: The case of the USA, 1966-2011,

D. Ilhan

(2017)

 

https://www.econstor.eu/bitstream/10419/162859/1/893982539.pdf

 

 

 

Rising Profits Don’t Lift Workers’ Boats

2016

https://www.bloomberg.com/news/articles/2016-05-05/rising-profits-don-t-lift-workers-boats

Is There a Connection Between Market Concentration and the Rise in Inequality?

 A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman Peter Orszag
October 16, 2015

 

http://gabriel-zucman.eu/files/teaching/FurmanOrszag15.pdf

 Evidence for the Effects of Mergers on Market Power and Efficiency

Blonigen, Bruce A., and Justin R. Pierce

(2016).

https://www.federalreserve.gov/econresdata/feds/2016/files/2016082pap.pdf

 

 

Market Power and Inequality: The Antitrust Counterrevolution and its Discontents

11 Harvard Law & Policy Review 235 (2017)

24 Apr 2016Last revised: 22 Feb 2017

Lina Khan / Sandeep Vaheesan

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2769132

 

Too much of a good thing

Economist

March 26 2016

https://www.economist.com/news/briefing/21695385-profits-are-too-high-america-needs-giant-dose-competition-too-much-good-thing

 

 The Fall of the Labor Share and the Rise of Superstar Firms

David Autor, MIT and NBER

David Dorn, University of Zurich

Lawrence F. Katz, Harvard University and NBER

Christina Patterson, MIT

John Van Reenen, MIT and NBER

May 1, 2017

https://economics.mit.edu/files/12979

 

 

BENEFITS OF COMPETITION AND INDICATORS OF MARKET POWER

https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160502_competition_issue_brief_updated_cea.pdf

 

 

 Market Concentration Grew During Obama Administration

SAM BATKINS, CURTIS ARNDT, BEN GITIS |

APRIL 7, 2016

 

https://www.americanactionforum.org/print/?url=https://www.americanactionforum.org/research/market-concentration-grew-obama-administration/

 Antitrust, Competition Policy, and Inequality

JONATHAN B. BAKER AND STEVEN C. SALOP

2015

http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=2474&context=facpub

Horizontal Shareholding, Antitrust, Growth and Inequality

Are US Industries Becoming More Concentrated?

Gustavo Grullon   Yelena Larkin   Roni Michaely

Date Written: April 23, 2017

 

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2612047

Horizontal Shareholding

109 Harvard Law Review 1267 (2016)

Harvard Public Law Working Paper No. 16-17    22 Apr 2016

 

Einer Elhauge

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2632024

IS THERE A CONCENTRATION PROBLEM IN AMERICA?

MARCH 27–29, 2017

Conference at University of Chicago / Stigler Center

https://research.chicagobooth.edu/stigler/events/single-events/march-27-2017

 

 

“Reigniting Competition in the American Economy”

Senator Elizabeth Warren

Keynote Remarks at New America’s Open Markets Program Event June 29, 2016

 

https://www.warren.senate.gov/files/documents/2016-6-29_Warren_Antitrust_Speech.pdf

 

 

The Rise of Market Power and the Macroeconomic Implications

Jan De Loecker† Jan Eeckhout‡

August 24, 2017

http://www.janeeckhout.com/wp-content/uploads/RMP.pdf

The Rise of Market Power and the Decline of Labor’s Share

The Financialization of the U.S. Economy Has Produced Mechanisms That Lead Toward Concentration

 June 2017

“No Convincing Evidence That Concentration Has Been a Major Factor in Explaining Poor U.S. Economic Performance”

 March 2017

Economists: “Totality of Evidence” Underscores Concentration Problem in the U.S.

“I Suspect the Major Reason for the Rise in Concentration Is Technological Change, Particularly in IT”

“The Increase in Common Ownership Corresponds to the Concentration Increase That Several Large Mergers Would Create”

Worried About Concentration? Then Worry About Rent-Seeking

“There Is Unambiguous Evidence That Concentration Is on the Rise and Widespread Over Most Industries”

A Second Gilded Age: The Consolidation of Wealth and Corporate Power

AMERICAN CONSTITUTION SOCIETY

JUNE 16, 2017

 

Low Interest Rates and Banks’ Profitability : Update July 2017

Low Interest Rates and Banks’ Profitability : Update July 2017

 

Please see my previous posts.

Impact of Low Interest Rates on Bank’s Profitability

Low Interest Rates and Banks Profitability: Update – December 2016

 

Since December 2016, there are several new studies published which study low interest rates and Banks profitability.

 

 

Liberty State economics – a Blog of New York Federal Reserve has published a new column in June 2017.

Low Interest Rates and Bank Profits

 

 

Reduced Viability? Banks, Insurance Companies, and Low Interest Rates

CFA Institute

2016

CFA Institute Blog: Low Interest Rates and Banks

 

 

Changes in Profitability for Primary Dealers since the Financial Crisis

Benjamin Allen

Skidmore College

2017

Changes in Profitability for Primary Dealers since the Financial Crisis

 

 

Deloitte Consulting has published a new report in 2017 on Bank Models viability in environment of low interest rates.

Business model analysis European banking sector model in question

 

THE EFFECT OF NEGATIVE INTEREST RATES ON EUROPEAN BANKING
July 7, 2016
International banker

 

https://internationalbanker.com/banking/effect-negative-interest-rates-european-banking/

 

 

Low interest rates place a strain on the banks

bank of Finland

2016

https://www.bofbulletin.fi/en/2016/2/low-interest-rates-place-a-strain-on-the-banks/

 

 

The profitability of EU banks: Hard work or a lost cause?

KPMG

October 2016

 

https://assets.kpmg.com/content/dam/kpmg/xx/pdf/2016/10/the-profitability-of-eu-banks.pdf

 

 

The influence of monetary policy on bank profitability

Claudio Borio

2017

http://onlinelibrary.wiley.com/doi/10.1111/infi.12104/abstract

 

 

Can Low Interest Rates be Harmful: An Assessment of the Bank Risk-Taking Channel in Asia

2014

Asian Development Bank

 

https://www.adb.org/sites/default/files/publication/31204/reiwp-123-can-low-interest-rates-harmful.pdf

 

 

Determinants of bank’s interest margin in the aftermath of the crisis: the effect of interest rates and the yield curve slope

Paula Cruz-García, Juan Fernández de Guevara and Joaquín Maudos

 

http://www.uv.es/inteco/jornadas/jornadas13/Cruz-Garcia,%20Fernandez%20and%20Maudos_XIII%20Inteco%20Workshop.pdf

 

 

Dutch Central Bank has published a new study in November of 2016 on Banks’ Profitability and risk taking in a prolonged environment of Low Interest Rates.

Bank profitability and risk taking in a prolonged environment of low interest rates: a study of interest rate risk in the banking book of Dutch banks

 

 

Net interest margin in a low interest rate environment: Evidence for Slovenia

Net interest margin in a low interest rate environment: Evidence for Slovenia

 

Global Financial Stability Report, April 2017: Getting the Policy Mix Right

IMF

2017

IMF Global Financial Stability Report April 2017

 

 

Negative Interest Rates: Forecasting Banks’ Profitability in a New Environment

Stefan Kerbl, Michael Sigmund

Bank of Finland

Negative Interest Rates: Forecasting Banks’ Profitability in a New Environment

 

 

Low Interest Rates and the Financial System

Remarks by Jerome H. Powell
Member Board of Governors of the Federal Reserve System
at the 77th Annual Meeting of the American Finance Association
Chicago, Illinois
January 7, 2017

https://www.federalreserve.gov/newsevents/speech/powell20170107a.pdf

 

 

Bad zero: Financial Stability in a Low Interest Rate Environment

Elena Carletti  Giuseppe Ferrero

18 June 2017

https://www.dnb.nl/en/binaries/paper%20Carletti_Ferrero_18June2017_tcm47-360758.pdf