Multinational Firm’s Online-Offline Channel Co-opetition Considering Tax Cost Saving and Days Sales Outstanding

Abstract

In contrast to domestic trade, the offline channel of a multinational firm (MNF) engaged in cross-border trade is characterized by a semi-centralized, semi-decentralized structure designed to minimize tax costs. This distinctive feature significantly impacts the MNF’s online selling strategy, especially when partnering with either agency selling or reselling e-commerce companies to boost sales. Additionally, the frequently observed Days Sales Outstanding (DSO) associated with the reselling strategy leads to a decrease in the MNF’s online channel profits due to payment delays. This paper aims to investigate an MNF’s cross-border e-commerce selling strategy, taking into account the implications of DSO. We develop and comprehensively solve a structurally complex online-offline channel model to derive meaningful insights. Among other results, we highlight that the MNF may disregard the profit reduction resulting from payment delays and choose the reselling strategy for its online channel. Moreover, the MNF may deliberately lower the profit margin of its offline retail division by imposing a high wholesale price to achieve substantial tax savings, notwithstanding the double marginalization effect. By analyzing the impacts of DSO, tax disparities, and profit margins within the offline channel, we reveal the intrinsic incentive conflicts among the MNF, its retail division and e-commerce company, underscoring the impossibility of achieving a Pareto improvement for all three parties involved. Finally, a set of model extensions is conducted to both validate the robustness of our core findings and derive additional insights.

Keywords: Agency selling and reselling, Cross-border e-commerce, Channel co-opetition, Retail strategy