Financing a service-oriented manufacturer when facing the risk of bankruptcy

AbstractIn the servicization business model, a service-oriented manufacturer sells the service derived from its products. Because of the special compensation method, a service-oriented manufacturer is more likely to be underfunded. A Stackelberg game is formulated to investigate the interaction among a bank, a manufacturer, and an operator, in which two financing strategies are considered: bank financing and guaranteed (internal) financing. The difference between these two strategies is who bears the bankruptcy risk of the manufacturer. With bank financing, the bank bears the risk and determines the interest rate, while under guaranteed financing, the operator sets a guaranteed financing interest rate. We find that under bank financing, the low operating efficiency of the manufacturer increases the bank's share of the supply chain benefits. In particular, the service-oriented manufacturer can rarely be financed if the bankruptcy risk is high. However, under guaranteed financing, the operator may, interestingly, even subsidise a manufacturer with high operating efficiency. In this situation, a high bankruptcy risk could incentivize the manufacturer to improve its operating efficiency for the sake of the subsidy. Practically, guaranteed financing could coordinate the supply chain through interest rate adjustments or subsidies when facing different risk levels, which could improve both firms' benefits.Keywords: Service-oriented manufacturingservicizationbank financingguaranteed financingsupply chain AcknowledgmentsThe authors are grateful to the associate editor and three anonymous referees for their valuable comments, constructive suggestions, and encouragements. The quality of this article was improved substantially as a result of their precious feedback.Disclosure statementNo potential conflict of interest was reported by the author(s).Data availability statementData for this study are available upon reasonable request from the corresponding author.Notes1 Throughout this paper, we use 'a manufacturer', 'a service-oriented manufacturer', 'a capital-constrained manufacturer', and 'a capital-constrained service-oriented manufacturer' interchangeably to denote a capital-constrained manufacturer that has adopted servicization.2 https://baijiahao.baidu.com/s?id=1638819395688732838&wfr=spider&for=pc.Additional informationFundingThis work was supported by the Key Program of National Natural Science Foundation of China (72331003); the National Natural Science Foundation of China (71971052, 72302040, 72271225); the Major Program of National Natural Science Foundation of China (72192830, 72192831); the Humanities and Social Sciences Research Project of the Ministry of Education of China (22YJC630031); the Postdoctoral Research Funds of Northeastern University (20230105); the Fundamental Research Funds for the Central Universities (2023GFZD01); Anhui Provincial Natural Science Foundation (2208085J06); and the USTC Research Funds of the Double First-Class Initiative (YD2040002017).Notes on contributorsZhong-Zhong JiangZhong-Zhong Jiang is a professor in Management Science and Engineering and the Dean of the School of Business Administration, and the Director of Institute of Behavioural and Service Operations Management, Northeastern University, Shenyang, China. He was a senior research associate with the Hong Kong Polytechnic University and North Carolina State University, Raleigh, NC, USA, and a visiting professor with the University of Minnesota, Minneapolis, USA. He received his Ph.D. degree in Systems Engineering from Northeastern University, Shenyang, China, in 2006. His current research interests include service-oriented manufacturing and digital-intelligent operations, behavioural and service operations management, logistics and supply chain optimisation. He has published academic papers in Manufacturing & Service Operations Management, Production and Operations Management, Transportation Research Part B, Naval Research Logistics, Decision Support Systems, European Journal of Operational Research, Omega, Journal of Operational Research Society, Annals of Operations Research, Transportation Research Part E, International Journal of Production Research, Computers and Operations Research and IEEE Transactions on Engineering Management, etc.Guangqi FengGuangqi Feng is a lecturer in Management Science and Engineering at the Business School, Liaoning University, Shenyang, China. He received his Ph.D. degree in Management Science and Engineering from Northeastern University, Shenyang, China, in 2023. His main research interests include service-oriented manufacturing and supply chain financing. He has published academic papers in Transportation Research Part E, Frontiers of Engineering Management, etc.Xiaolong GuoXiaolong Guo is a professor of the School of Management, University of Science and Technology of China. He holds a Ph.D. in Management Science and Engineering from the University of Science and Technology of China. He has published a book 'Storage Policies and Maintenance Support Strategies in Warehousing Systems' in Springer and 50 articles in journals including Manufacturing & Service Operations Management, Production and Operations Management, Journal of Management Information Systems, International Journal of Production Research, European Journal of Operational Research, and Omega. His research has been recognised as outstanding achievement by the National Natural Science Foundation of China, and won the First Prize of Humanities and Social Sciences of Ministry of Education of the People's Republic of China.Na HeNa He is a postdoctor at the School of Business Administration, Northeastern University, Shenyang, China. She received her Ph.D. degree in Management Science and Engineering from Northeastern University, Shenyang, China, in 2022. Her research interests include supply chain and sustainable operations management. She has published academic papers in Production and Operations Management, International Journal of Production Research, Transportation Research Part E, Annals of Operations Research and IEEE Transactions on Engineering Management, etc.Di HuDi Hu received her master degree in Management Science and Engineering from Northeastern University, Shenyang, China, in 2022. Her main research interests include service-oriented manufacturing and supply chain financing. She is now an engineer in the department of customer quality management, Xiaomi Corp, Being, China.