No. 022/2020/POM

The impact of information integration on supply chain finance and productinnovation performance: A case study

Min Zhang
Queen’s Management School
Queen’s University Belfast
Qiuping Huang
College of Management
Shenzhen University

Xiande Zhao*
Department of Economics and Decision Sciences
China Europe International Business School (CEIBS)

Lijun Ma
College of Management
Shenzhen University

June 2020––––––––––––––––––––––––––––––––––––––––* Corresponding author: xiande Zhao (xiande@ceibs.edu). Address: Department of Economics and Decision
Sciences, China Europe International Business School (CEIBS), 699 Hongfeng Road, Pudong, Shanghai 201206,
China.

The impact of information integration on supply chain finance and product innovation
performance: A case study

Abstract
Purpose This study focuses on the implementation of an innovative supply chain finance(SCF) solution (i.e., purchase order finance) by an innovative SCF lender (i.e., supply chain
service provider). It empirically investigates the impact of information integration between an
SCF lender and borrowers on the lender’s SCF decisions and the borrowers’ productinnovation performance.
Design/methodology/approach We conduct a case study in the Chinese smartphone industry.
A mixed method design is used, and data are collected from both the SCF lender andborrowers. We first use an exploratory case study approach and collect qualitative data.
Hypotheses are developed about the relationships between information integration, SCF andproduct innovation performance. We then conduct a confirmatory case study and collectquantitative data. As data are obtained from the firm and project levels, a multilevel structural
equation modelling method is used to test the hypotheses.
Findings We find that the SCF lender and borrowers integrate information through bothsocial interaction and information system integration. Information system integration ispositively associated with SCF but does not significantly affect product innovation
performance. Social interaction is negatively associated with SCF but positively associatedwith product innovation performance. SCF is positively associated with product innovation
performance.
Originality/value This study contributes to the SCF literature by providing empiricalevidence on the implementation of SCF from both the lender’s and borrower’s perspectives.
We find that information system integration and social interaction have different effects on
SCF and product innovation performance. The results thus provide insights into how a lendermakes SCF decisions and into the benefits of SCF for borrowers.

Keywords: information integration, supply chain finance, product innovation performance,
mixed method research

Article Classification: Research paper

11. Introduction
Late payment is a headache for businesses all over the world. Supply chain finance (SCF)
aims to ensure that companies in the supply chain receive early payment and can obtain loans
to finance growth and innovation (Wuttke et al., 2019). It uses supply chains to fund internal
operations (Wuttke et al., 2013b). SCF has become an important tool for facilitating trade andoptimising the planning, managing and control of working capital (Extra et al., 2019). The
global volume of SCF in 2017 was $574 billion and funds in use was $212 billion, increasing
28% and 26% over 2016, respectively (Bickers, 2019). It is estimated that the size of the
global working capital finance market is about $56.3 trillion and that around half thecompanies in the S&P 500 (e.g., Procter & Gamble, Rolls-Royce, Coca-Cola and Vodafone)use some form of working capital finance (Greensill, 2019).
A number of innovative SCF models have been introduced, and new SCF lenders haveentered the market (Caniato et al., 2019, Jia et al., 2020a), especially in emerging markets(10000link, 2019). Recent surveys show that the SCF industry in China has special
characteristics compared with that in Europe (Liu et al., 2015, Bals, 2019). For example,
reverse factoring is the most common SCF solution in Europe, whereas purchase orderfinance is preferred in Asia (Extra et al., 2019). Although new entrants such as platform andlogistics service providers play important roles in the SCF industry, banks and factors remain
the most important financial actors in Europe (Extra et al., 2019). Around one third of SCF
lenders in China are supply chain service providers (SCSPs) (10000link, 2019). Aside from
SCF solutions, Chinese SCSPs offer value-added services for borrowing companies, which
are usually small and medium-sized enterprises (SMEs) that need funds to function andexpand their business. These services include customs clearance, inventory management,
logistics, import/export commodity inspection and international settlement (Liu et al., 2015).
SCSPs can thus monitor and control the information and physical flows in supply chains andplay an important role in providing SCF solutions (10000link, 2019). However, the majorityof existing studies of SCF solutions are from the buyer’s perspective (Caniato et al., 2019,
Zhao and Huchzermeier, 2019) or focus on the manufacturer-centred financial network (Jia etal., 2020a). Empirical evidence of how SCSPs implement SCF solutions remains scarce (Liuet al., 2015, Xu et al., 2018).
This study aims to investigate the impact of information integration between SCSPs (i.e.,
SCF lenders) and SCF borrowers (SCFBs) on the SCSPs’ SCF decisions and the SCFBs’
product innovation performance. We focus on purchase order finance, an important preshipment finance instrument for mitigating SCFBs’ capital constraints (Zhao and2Huchzermeier, 2019). Purchase order finance is a loan provided by a finance provider to aseller of goods for the sourcing or conversion of raw materials or semi-finished goods into
finished goods that are delivered to a buyer (Global Supply Chain Finance Forum, 2016). It isbased on a purchase order guaranteed by the buyer (Zhao and Huchzermeier, 2019) andcovers the working capital needs of the seller, including the procurement of raw materials andother pre-shipment expenses, to allow the seller to fulfil delivery to the buyer (Global Supply
Chain Finance Forum, 2016). An SCSP (i.e., SCF lender) and seller (i.e., SCFB) havedifferent information on the uncertainties and risks of a transaction with a buyer. In addition,
because of the inadequate credit guarantee system in China and the low credit ratings andhigh default frequency of Chinese SMEs, SCSPs face the issues of moral hazard and adverse
selection, leading to credit risks (Stiglitz and Weiss, 1981, Liu et al., 2015). Therefore, an
SCSP must use a variety of screening devices and mechanisms to control SCFBs’
opportunistic behaviours (Pfohl and Gomm, 2009). Information integration can improveconnectivity and transparency in supply chains, and thus reduce information asymmetry
between an SCSP and SCFBs (Bals, 2019, Chen and Cai, 2011). Such integration allows
SCSPs to evaluate SCFBs’ ability or willingness to repay SCF. Researchers have argued that
information integration allows an SCF lender to identify valuable projects, determine theprobability of default, and monitor and control financial risks (Cenni et al., 2015, Bias and
Gollier, 1997). However, empirical evidence is still lacking for how an SCSP integrates
information in a supply chain and the impact of information integration on its SCF decisions(Jia et al., 2020a, Gelsomino et al., 2016). Thus, the first research question addressed by thispaper is: what are the impacts of information integration on an SCSP’s SCF decisions?
The impacts of SCF on supply chain members’ operations, performance and capability
development have attracted increasing research interest (Xu et al., 2018, Jia et al., 2020b).
Because SCF connects operational with financial decisions, it has been viewed as a criticalway for supply chains to improve transparency and stability and manage financial risks(Caniato et al., 2016, Silvestro and Lustrato, 2014). Researchers have argued that SCF can
improve supply chain performance by shortening the cash-to-cash (C2C) cycle andoptimising working capital in a supply chain through a decrease in accounts receivable or an
increase in accounts payable (Xu et al., 2018). Empirical evidence also reveals that SCF
solutions allow supply chains to decrease financial costs and improve access to finance,
alleviating supply chain members’ financial distress (Caniato et al., 2016, Gelsomino et al.,2016). For example, purchase order finance allows an SCFB to obtain financing to fulfil anorder from a buyer. An SCF lender can also reduce its credit risk because of the greater
3control and reassurance in the trading relationship between the SCFB and its buyer (Global
Supply Chain Finance Forum, 2016). Although researchers have argued that SCF may serve
as a catalyst for innovation, the empirical evidence on the impact of SCF solutions on
innovation performance is limited (Jia et al., 2020b). The second research question addressedby this paper is therefore: what are the impacts of SCF on an SCFB’s product innovation
performance?
The study contributes to the literature in three ways. First, the findings enhance current
understandings of how information integration enables and supports SCF. Caniato et al.
(2019) highlight the need to address the role of real-time information and digital technologies
in SCF implementation. Bals (2019) calls for a broader discussion of how information
technologies (ITs) support SCF. Jia et al. (2020a) argue that empirical evidence of how interorganisational relationships affect SCF practices is scarce. This study advances previous
conceptual studies by providing empirical evidence of the distinctive effects of information
system integration and social interaction on an SCSP’s SCF decisions (Bals, 2019, Jia et al.,2020a). The findings also improve existing knowledge on the coordination of informationand financial flows in supply chains and provide insights into how SCF lenders manage
financial risks (Gelsomino et al., 2016, Liu et al., 2015).
Second, this study provides empirical evidence of the impact of SCF solutions on
product innovation performance, thus demonstrating the non-financial benefits of SCF
solutions (Caniato et al., 2019). In a literature review, Gelsomino et al. (2016) find that SCF
solutions can bring financial and operational benefits, such as improved supply chain
visibility and C2C cycles, reduced risk of bankruptcy and strengthened supply chain links. In
another literature review, Xu et al. (2018) find that SCF positively influences operational
performance. Jia et al. (2020b) argue that SCF solutions enable supply chain innovation,
which improves sustainability. The present study sheds light on the benefits to SCFBs ofadopting SCF solutions, enhancing the knowledge of the performance outcomes of SCF (Liuet al., 2015).
Third, this study presents a case study that focuses on an SCSP in the Chinese
smartphone industry and purchase order finance. Liu et al. (2015) find that the SCF
phenomenon is contingent on specific national or business system characteristics. Xu et al.
(2018) call for more research examining SCF in specific industries. Jia et al. (2020a) find thatmost of the SCF studies focus on banks and manufacturers as SCF providers. They call forfurther investigation into the roles of supply chain orchestrators in integrating supply chain
flows. The present study enhances current understandings of how SCSPs, who are innovative4

SCF lenders, integrate information and financial flows and implement SCF (Jia et al., 2020b,
Caniato et al., 2019). In addition, researchers have shown that most SCF studies focus onreverse factoring (Bals, 2019) and trade credit (Xu et al., 2018). Other innovative SCF
solutions have received less attention (Gelsomino et al., 2016). This study contributes to theliterature by providing empirical evidence on the implementation of purchase order finance.
Moreover, researchers have highlighted a lack of empirical research on SCF (Liu et al., 2015,
Gelsomino et al., 2016, Caniato et al., 2019, Jia et al., 2020b). Using a mixed method, thisstudy collects qualitative and quantitative data from an SCF lender and borrowers. The
findings provide empirical evidence on different stakeholders’ views of SCF, leading to abetter understanding of SCF implementation (Bals, 2019, Xu et al., 2018).
The next section reviews the literature on SCF. Section 3 introduces the researchmethods and presents the findings of the exploratory and confirmatory case studies. In section
4, we discuss the empirical findings, highlight the theoretical and practical implications, andpoint out the study’s limitations and future research directions.

2. Literature review
SCF is a topic of increasing interest in academia, and several researchers have conducted
literature reviews on the topic. One stream of literature reviews focuses on classifying
existing studies to identify research themes. For example, Liu et al. (2015) review SCF
research published in Chinese journals. They find that existing studies focus on concept
development, the operation and coordination of involved parties, risk management, collateraland the institutional environment of SCF in China. They argue that the integration of material,
information and financial flows and the performance measurement of SCF are two themesthat require critical attention. Gelsomino et al. (2016) identify two main ways that SCF has
been defined. The finance oriented perspective views financial institutions (i.e., lenders) as an
essential component and focuses on payables and receivables, whereas the supply chainoriented perspective focuses on working capital optimisation in terms of inventories and fixed
asset financing. The researchers highlight the lack of empirically based holistic analyses of
the application of SCF. Xu et al. (2018) argue that SCF research includes two main streams.
The first focuses on how financial mechanisms affect operation decisions through inventory
models, and the second on how financial mechanisms influence operation decisions in theentire supply chain and how SCF services create value for the supply chain. They similarly
call for empirical and case studies of SCF in specific industries. Another stream of literature
reviews focuses on developing research frameworks. For example, Bals (2019) proposes a5

framework for SCF ecosystems that includes dimensions for supply chain collaboration,organisation, finance, technology, market and regulation, products, stakeholders and life
cycles. The author also suggests that future research should explore SCF from the perspectiveof solution providers and the implementation of various SCF solutions. Jia et al. (2020a)
develop a framework using the information processing theory and identify mapping finanicalstructures, designing financial business processes and sharing financial information systems
as three SCF capabilities that enable finanical supply chain integration. They call for more
research to investigate the impacts of technologies and inter-organisational relationships on
different SCF practices and the roles of logistics service providers and supply chainorchestrators in SCF. Jia et al. (2020b) develop a framework for sustainable SCF by
identifying motivations, solutions, enablers, barriers and performance for supply chains. Theysuggest that future research explore SCF in the context of specific industries and developing
regions, and apply more empirical methods and case studies.
The literature reviews reveal that the existing empirical evidence on SCF
implementation is still limited and fragmented (Bals, 2019, Gelsomino et al., 2016). There arefew empirical studies investigating the applications of innovative SCF solutions in specificindustrial and regional contexts (Gelsomino et al., 2016, Xu et al., 2018). Although existing
research has shown that SCF can improve operational and financial performance (Xu et al.,2018), it is necessary to identify the performance outcomes of SCF beyond financial
indicators (Caniato et al., 2019, Jia et al., 2020b). Researchers have shown that technology
and supply chain collaboration enable the integration of supply chain financial andinformation flows (Bals, 2019); however, there is insufficient empirical evidence for the
impact of inter-organisational relationships and ITs on the application of SCF (Caniato et al.,2019, Jia et al., 2020a). In addition, researchers have highlighted that knowledge about therole of innovative SCF lenders and the interactions between different SCF stakeholders
remains limited (Caniato et al., 2019, Jia et al., 2020a).
Analytical models have shown that SCF by third party logistics (3PL) firms improves
supply chain performance. For example, Chen and Cai (2011) find that a 3PL firm’s
integration of logistics and financial services can bring profits to both itself and the entire
supply chain. Chen et al. (2019) find that some 3PL firms have emerged as supply chainorchestrators and SCSPs through providing procurement and financial services. They findthat these firms play a critical intermediary role in supply chains by offering SCF, and that
supply chains led by such firms can achieve higher profit. Huang et al. (2019) show that
financial services offered by a 3PL firm can lead to the Pareto improvement of the profit of a6

supply chain. Although some scholars have started to empirically investigate the SCF offeredby 3PL firms and SCSPs (Li and Chen, 2019), empirical evidence on how they make SCF
decisions is limited.
Several researchers have conducted qualitative case studies to empirically investigate theimplementation of SCF solutions. For example, Wuttke et al. (2013a) explore the SCF
adoption process. They find that supplier relationship has a positive impact on thedissemination of SCF and that supplier involvement can enhance the effectiveness of theinterrelated processes of restructuring the organisation and redefining SCF. Wuttke et al.
(2013b) investigate the consequences of pre- and post-shipment financial supply chain
management. They find that the former can improve upstream supply chain working capital,
whereas the latter can improve downstream supply chain working capital. They also reportthat both forms of financial supply chain management can reduce the risks of supply chain
and cash flow disruption, and the effects are influenced by supply chain integration. Caniato
et al. (2016) study the implementation of traditional financial solutions (reverse factoring andcaptive factoring), innovative financial solutions (advanced forms of reverse factoring,inventory financing, dynamic discounting and seller-based invoice auction) and supply chain
collaboration solutions (vendor managed inventory and consignment stock). They find that
digitalisation is positively associated with innovative and supply chain collaboration solutions
but negatively affects traditional financial solutions. Moreover, inter-firm collaboration andpower are critical when SCF is adopted to improve financial performance. Martin and
Hofmann (2019) classify SCF practices according to the time of financing and source offunds. They find that the financial service provider’s IT capabilities and supply chain
relationship-related factors influence the application of SCF practices. Therefore, the casestudies reveal that IT and social relationships play critical roles in the application of SCF.
However, the case studies were conducted in Europe, and they do not furnish empiricalevidence on the application of innovative SCF solutions (e.g., purchase order finance).
Recently, quantitative studies have been conducted to investigate SCF adoption. For example,
using data collected from an SCF technology platform, Wuttke et al. (2019) find that
suppliers adopt SCF faster when they face increased mimetic and normative pressures,
anticipate larger cost reductions and have less access to finance.

3. Research methods
This study adopts a mixed method design and combines exploratory and confirmatory casestudy approaches (Ridder, 2017). There are four reasons that we use a mixed method7

(Saunders et al., 2019): 1) initiation: qualitative data are used to develop measures andhypotheses, and quantitative data are used to test the hypotheses. An exploratory case study isused for contextualisation and to define the nature and scope of the confirmatory case study;2) generalisability: the confirmatory case study helps us validate, extend and modify thefindings of the exploratory case study; 3) diversity: qualitative and quantitative data arecollected from an SCF lender and borrowers, allowing the study to reflect the diverse viewsof different stakeholders; 4) triangulation: combining qualitative and quantitative data frommultiple sources allows us to ascertain if the findings from exploratory and confirmatory casestudies corroborate each other.
3.1 Exploratory case study
3.1.1 Case selection
Theoretical sampling was used to select the case (Yin, 2009). We selected a supply chain
service provider (i.e., SCFL) in the Chinese smartphone industry as a representative case thatenables us to capture the application of purchase order finance (Yin, 2009). Because of
China’s immature market mechanism and under-developed credit rating system, Chinese
SMEs suffering from a shortage of fixed assets experience difficulty in obtaining access toliquidity through conventional bank loans (Liu et al., 2015). This has been a longstanding
issue for the Chinese smartphone industry, which is characterised by hyper-competitiveness,
fast-changing consumer tastes and very short product life cycles. The industry has a growing
number of product designers that are expanding their business in the international market.
The rapid, successful launch of new products is critical for them to gain competitive
advantages in this industry. They are typically cash-constrained SMEs that focus on researchand development (R&D) but lack production and supply chain management capabilities.
They also face challenges due to prolonged customs clearances (usually 1 to 2 days), frequent
inspections of imported materials and exported goods, and prolonged waits for tax refunds.
They cannot provide advance payment for procurement after receiving orders from customers
nor obtain loans from banks. The SCF provided by SCSPs has been viewed as a solution tothis problem, as product designers can obtain working capital in this way to support productinnovation using purchase orders as collateral (Liu et al., 2015, 10000link, 2019, Li and Chen,
2019).
SCFL has been acknowledged as one of the most successful SCSPs in the Greater Bay
Area of China. In its early days, SCFL mainly offered import and export services, such as
customs clearance and duty drawback. Nowadays, it offers an ‘Internet plus supply chain
plus financing’ business model. Specifically, it has developed an E-SCM platform and offers
8supply chain execution services (e.g., customs clearance for imports and exports,
international and domestic logistics, warehouse management, vendor managed inventory, free
trade zone logistics, purchasing and sales) and supply chain integration services (e.g.,
manufacturing, distribution and full-integration supply chain services). SCFL has been given
an ‘AA’ rating among enterprises recognised by the Chinese customs and has been awarded‘Direct Passage’ status by the Shenzhen tax bureau. SCFL has also developed close
collaborative relationships with commercial banks. It has received a combined credit line of
10 billion Chinese yuan. It has also received the designation of ‘headquarter-level business
partner’ from the China Construction Bank and ‘branch-level key customer’ from the Bank of
China and Industrial and Commercial Bank of China. Based on its supply chain management
services and support from banks, SCFL has offered SCF to product designers since 2009 tofinance the procurement of components and raw materials, which can improve their financial
efficiency by decreasing borrowing costs and loan barriers. In addition, SCFL has made amajor effort to integrate information flows with product designers. Therefore, this case study
offers the opportunity to unpack the relationships between information integration, SCF, andproduct innovation performance (Ridder, 2017).
3.1.2 Data collection
The data sources include semi-structured interviews and secondary data (e.g., company
reports and information from the Internet). Triangulation on important issues allows theresearch team to cross-verify the findings (Yin, 2009).
The interviews were guided by a research protocol (Appendix I), which was developed
based on the research questions, literature review and secondary data. In total, this research
project spanned a period of 18 months. The research team interviewed 10 senior managers in
SCFL, including the president, director and vice director of the information system
department, the director and vice director of the risk control department, the director of thefinancial department, two business managers, and two operations managers. We alsointerviewed four general managers and one finance manager from four product designers (i.e.,
SCFBs). Each interview lasted approximately two to three hours and was conducted in
Chinese. The interviews were all audio-recorded. The team members conducted debriefing
meetings both before and after each interview to share information and experiences and toreview the logic and contents of the interviews to establish a chain of evidence. The
recordings were sent to a professional for transcription; the results were then translated into
English by a professional translator. In addition, the research team stayed in informal contact9

with the managers via telephone, e-mail and instant message software to clarify the issues
raised in the debriefing meetings and ask for further explanations. The case database includes
transcripts, notes, documents gained from SCFL, and information from the Internet. The
reliability of this study is addressed by the research protocol and the development of the casestudy database (Yin, 2009). Using multiple data sources and maintaining a chain of evidence
help this study to establish construct validity (Yin, 2009).
3.1.3 Findings
3.1.3.1 SCF
The SCFBs have limited physical assets for collateral and their cash flows are weak, resulting
in low credit ratings and hence difficulty in obtaining loans from banks (Pfohl and Gomm,
2009). SCFL’s president commented that ‘the financing for these product designers isdifficult, expensive, and chaotic’. The general managers of SCFBs highlighted that they‘cannot provide advance payment for purchasing raw materials and components after
receiving orders from customers’ and ‘lack funds to conduct R&D and commercialise new
product designs’.
According to SCFL’s president, SCF is managed on a project basis, and involves twoplayers: SCFBs, which are the product designers selling to domestic and foreign customers,
and SCFL, which is the finance provider. An SCF project begins with a purchase orderconfirmed by a customer (Zhao and Huchzermeier, 2019). SCFL provides purchase orderfinance to cover a certain percentage of the SCFBs’ procurement costs (Global Supply Chain
Finance Forum, 2016). A key SCF decision made by SCFL is the proportion of the loan to
the total purchasing cost of raw materials and components, which is determined by SCFL’s
assessment of risks. An SCF project is initiated by SCFBs after they receive purchase orders
and ends when SCFL receives payment (principal, interest and service fees) from customers.
Although customers are not directly involved in the SCF project, the source of the repayment
is usually the sales from the customers. The director of SCFL’s risk control department
mentioned that the main risks of the SCF projects are SCFBs’ willingness and ability to fulfil
the purchase orders (Liu et al., 2015). To control financial risks, SCFL requires SCFBs to ask
their customers to pay the deposit and retainage directly to SCFL. The financial manager ofan SCFB commented, ‘SCFL helped us evaluate the credit history of an internationalcustomer and the validity of its orders, because different customers used different forms of
payments, such as Teletext, Letter of Credit (LC), or even Open Account. SCFL has to be
more watchful than us because the LC is sent to SCFL, not us!’ Moreover, using the loan,
SCFL purchases the raw materials and components in international and domestic markets on
10

behalf of the SCFBs. It also requires SCFBs to use its supply chain management services: forexample, it directly sends the components from suppliers to assembly plants and helps the
SCFBs with export customs clearance (including paying tax), international and domestic
logistics, inventory management (including storage, sorting and delivery), settlement and tax
refunds (Chen et al., 2019). In addition, SCFL requires SCFBs to share large amounts of
information and knowledge about the supply chain processes.
As SCFL’s president commented, SCFL is ‘deeply integrated into SCFBs’ supply chain
processes to control its assets prior to shipment’. The directors of SCFL’s risk control andfinancial departments mentioned that social interactions and information systems play criticalroles in SCFL’s risk assessment of an SCF project, because they can reduce information
asymmetry (Martin and Hofmann, 2019). The SCFBs’ general managers commented that
SCF allows them to obtain financing to fulfil customer orders. They also commented that thecollaboration with SCFL helps them reduce the lead time and costs in supply chains, optimise
working capital and invest more in R&D (Li and Chen, 2019). The president of SCFL
explained that combining SCF with supply chain management services gives it greater
control of the loans, which reduces financial risks (Wuttke et al., 2013a). Moreover,managing supply chains jointly with SCFBs allows them to build ‘a “joint-win” and “jointmanagement” chain’ and achieve a ‘win-win relationship’.
3.1.3.2 Information integration
SCFL’s managers all agreed that information integration with SCFBs plays a critical role in
SCF decisions. The connectivity and information transparency of supply chains can besignificantly improved, leading to lower information asymmetry between SCFL and SCFBs(Gimenez and Venture, 2005). Data synchronisation and knowledge sharing allow SCFL tooffer supply chain management services and integrate operational and financial processes(Silvestro and Lustrato, 2014, Jia et al., 2020a). As a result, information integration cansignificantly reduce SCFL’s financial risks. As SCFL’s president commented, ‘SCFBs do notnecessarily have low credibility. Sometimes, their transactions are scattered around and lacktransparency to banks. Information integration gives them a place to aggregate theirscattered transactions together with quantifiable data to prove their credibility’.
SCFL’s business and operations managers explained that communication and interaction
between SCFL’s and SCFBs’ employees ensure the SCFBs understand SCFL’s supply chain
management services and their obligations (Zhang et al., 2015), and especially how SCFL
manages SCF projects and business processes. SCFL’s president highlighted that SCFL
offered SCF to SCFBs ‘that have a vision, customer orders, and technology, but lack capital,
11

supply chains, and a strong credit history’. Social interactions allow SCFL to identify such
SCFBs and establish a cooperative relationship with them (Bals, 2019). Managers in the
SCFBs all mentioned that their employees maintain close contact with SCFL to ensure theyreceive support in their purchasing, inventory and logistics operations and solve problems
quickly. Thus, social interactions allow SCFL and SCFBs to integrate supply chain processes(Huo et al., 2013). Moreover, SCFL’s operations managers commented that interactions
between employees enable SCFL to obtain suggestions for improvement and technicalknowhow from SCFBs (Gimenez and Venture, 2005). According to SCFL’s president,
through frequent social interactions, SCFL and SCFBs can align business processes andcoordinate decision making.
SCFL has spent a great deal of effort and resources on IT and has developed an E-SCM
system that features a range of software and applications. The director of SCFL’s information
system department explained that SCFL uses the SAP ERP system as the backbone of the IT
infrastructure, and it has an IBM Si integrated data centre and an in-house developed B2B
web-based database. SCFBs can access the E-SCM system through an Internet portal.
SCFL’s president commented that the system enables ‘faster communication, shorter leadtime, lower transaction costs, lower pipeline inventory, and more effective planning andcoordination in supply chains’ (Devaraj et al., 2007). SCFL has encouraged the SCFBs to use
the E-SCM system directly to acquire, share and analyse data, or to develop an information
system compatible with the E-SCM system to synchronise data. SCFBs’ managers agreed
that using the E-SCM system improves the quality, quantity and speed of information flows(Zhang et al., 2018). SCFL also verifies the information by checking the materials andproducts in supply chains, such as warehouse shelves, assembly lines and trucks. The E-SCM
system gives SCFL an advantage over banks in managing risks when lending to SCFBs, as
the banks normally cannot control the physical, information, and financial flows in supply
chains at the operational level (Liu et al., 2015, Li and Chen, 2019). The operational andfinancial information exchanged via the E-SCM system enables SCFL to build a ‘closed-loopsystem’, reducing the information asymmetry and risks of SCF projects (Lee et al., 2015, Xu
et al., 2018). Therefore, the case evidence reveals that SCFL integrates information flows
with SCFBs through social interaction and information system integration.
3.1.3.3 The impact of information integration on SCF
Social interaction allows employees in SCFL and SCFBs to develop a common
understanding of their roles and responsibilities and to agree upon inter-organisational
processes in managing supply chains and SCF projects (Huo et al., 2013). As SCFL’s
12

president explained, interactions with SCFBs’ employees help it identify and collaborate with
the SCFBs that have compatible cultures, goals and strategies, thus developing trust and longterm relationships (Villena et al., 2011). The directors of SCFL’s risk control and financial
departments emphasised that such relationships can discourage SCFBs’ opportunistic
behaviours, reducing SCF risks (Ferri and Murro, 2015, Kirschenmann, 2016). In addition,
SCFBs’ general managers commented that frequent, regular interactions with SCFL, such as
by attending conferences, seminars and workshops, help them obtain support on supply chain
management, integrate their business processes with SCFL and solve problems quickly.
Doing so improves the SCFBs’ capabilities to fulfil customers’ orders, reducing theprobability of default (Zhao and Huchzermeier, 2019). Moreover, social interactions facilitate
the exchange of soft information such as private knowledge about supply chain partners,
industrial knowhow and suggestions for improvement (Zhang et al., 2018). This knowledge
can decrease information asymmetry in supply chains, reducing operational uncertainties andfinancial risks (Stiglitz and Weiss, 1981). As a result, SCFL can accumulate more knowledge
about SCFBs’ strategies, capabilities and operational processes via social interaction,
enabling it to better evaluate, monitor and control SCF projects (Bias and Gollier, 1997).
Therefore, we propose the following hypothesis.
H1. Social interaction between SCFL and SCFBs is positively associated with the SCF
received by the SCFBs.
As the director of SCFL’s information system department commented, the E-SCM systemis ‘a common service platform on the Internet to promote fully automated data exchange’.
SCFL’s president argued that the ‘E-SCM system gives us a control lever for all flows: We
can see and control all flows of the data, goods, and money passing through the platform!
With this tight control, SCFL has been able to provide financing to its clients who have a
hard time getting loans from traditional channels.’ SCFL encourages SCFBs to either use the
E-SCM system to manage their supply chains or integrate their information systems with it.
As a result, the information systems in the supply chains can be fully integrated (Devaraj etal., 2007). Sharing information on physical and financial flows in integrated information
systems improves the transparency of the supply chains, reducing SCFL’s financial risks(Martin and Hofmann, 2019). Using integrated information systems to manage supply chain
and business processes allows SCFL to acquire timely, accurate hard information aboutprocurement, production, inventory, delivery and settlement from SCFBs, which improves
the transparency of their operations and allows SCFL to monitor and control the physical andfinancial flows to ensure the repayment of SCF (Caniato et al., 2016, Jia et al., 2020a). In
13

addition, information system integration furnishes SCFL with a large amount of data on
SCFBs’ past supply chain operations and SCF projects, giving it a better understanding of
SCFBs’ ability to fulfil customer orders, and enabling it to predict the profitability and risks
associated with SCF projects. Therefore, information system integration can reduce theinformation asymmetry and uncertainties of SCF projects (Caniato et al., 2019). As a result,integration between SCFBs’ information systems and the E-SCM system plays a critical rolein the success of SCF projects, and the degree of information system integration is a key
criterion for SCFL when making SCF decisions. Therefore, we propose the following
hypothesis.
H2. Information system integration between SCFL and SCFBs is positively associated with
the SCF received by the SCFBs.
3.1.3.4 The impact of information integration on product innovation performance
The managers in SCFBs commented that quickly introducing high quality products is critical
for their survival and growth. They also highlighted that although SCFL does not directly
participate in R&D processes, social interactions with SCFL enable them to obtainknowledge about market and supply chain partners and suggestions for improvement (Zhang
et al., 2015, Zhang and Li, 2010). According to SCFL’s president, supply chain coordinationis one of its core competences. He explained that ‘more and more smartphone supply chain
partners, from foreign clients who make orders to upstream component suppliers andlogistics providers, band together to use our supply chain management services. Therefore, I
usually say that our supply chain services are “embedded” in the (smartphone) industry’. As
a result, SCFL has developed good relationships with various stakeholders in supply chains
and accumulated knowledge through offering supply chain management services, such aschanges in customer preferences and market demand, the capabilities and service level ofsupply chain members, and the technical specifications and quality of components (e.g.,
display, speaker and camera). Active and frequent interactions and communications enable
SCFBs to acquire private knowledge and technical knowhow when integrating businessprocesses with SCFL (Villena et al., 2011). The knowledge helps SCFBs identify high quality
suppliers for different components and develop a deeper understanding of customer
preferences, which ensure the successful launch of new products (Vorhies and Morgan, 2005).
The SCFBs’ managers also highlighted that social interactions help them obtain support from
SCFL with supply chain management. For example, SCFL offers a ‘three in one’ supply
chain project service, which includes consultation, service and supply chain execution. It
provides the design and planning of an integrated supply chain for a new product and helps
14

SCFBs purchase components and services, which enables them to establish relationships witha bundle of trustworthy, high-quality component suppliers, assembly plants, warehouses and
3PL firms. These can not only ensure the quality of new products but also speed up new
product introduction (Zhang and Li, 2010). In addition, SCFBs’ managers mentioned that
active and frequent social interactions help them quickly solve problems related to purchasing,
manufacturing, inventory and logistics, which enables them to launch new products at highspeed (Zhang and Li, 2010, Zhang et al., 2018). Therefore, we propose the following
hypothesis.
H3. Social interaction between SCFL and SCFBs is positively associated with the SCFBs’
product innovation performance.
The director of SCFL’s information department explained that the E-SCM systemprovides ‘a common infrastructure and protocol to enable real-time information exchange
among supply chain members.’ Integrating information systems with the E-SCM systemallows SCFBs to obtain real-time transaction data on component purchasing and delivery,
inventory management and delivery, which allows them to improve operational schedulingand strategic planning for new product development (Vorhies and Morgan, 2005). The
director also mentioned that the E-SCM system collected a great deal of hard information inareas such as overseas demand, bill of materials of different smartphone designs and qualified
component suppliers and contracting manufacturers. Using the E-SCM system can help
SCFBs digitalise operations and use big data analytical tools to identify market opportunities,
screen new product ideas and design and plan supply chains, enabling them to successfullylaunch new products (Zhang and Li, 2010). Therefore, using information systems to support
supply chain collaboration enables SCFBs to develop seamless business processes and avoid
miscommunication and delays, which reduces the costs and lead-time of new productintroduction (Zhang et al., 2018). Synchronising data and exchanging information using
information systems greatly improves the efficiency and effectiveness of the information
flows, which enables SCFL to grasp the technical specifications of the new products andcomponents and the requirements of the production processes (Devaraj et al., 2007). As aresult, SCFL can help the SCFBs source and purchase high quality components and services,
improving the quality of new products (Zhang and Li, 2010). Therefore, we propose thefollowing hypothesis.
H4. Information system integration between SCFL and SCFBs is positively associated with
the SCFBs’ product innovation performance.
3.1.3.5 The impact of SCF on product innovation performance
15

The SCFBs’ managers explained that SCF plays a critical role in supporting new productdevelopment by providing financial resources and reducing purchasing costs (Jia et al.,2020b). One manager of an SCFB mentioned that ‘we relied on SCFL to get a good price forour components because SCFL can purchase a component by aggregating multiple orders
from different customers. A 500-pixel automatic-focus camera lens, for instance, has acurrent market price of $2.50 each. However, with a large purchase volume, the unit pricecan be lowered to $1.50. There is no way I can get this price without going through SCFL.’
Therefore, when an SCFB receives more SCF, it can greatly reduce the cash used forpurchasing components, which allows the SCFB to spend more resources to speed productcommercialisation (Pfohl and Gomm, 2009). SCF allows SCFBs to expand their businesses
and serve more customers even if they have limited financial resources (Liu et al., 2015). As
a result, they can invest more capital in human resources, information technologies, market
research and customer relationship management (Silvestro and Lustrato, 2014). The SCFBs
can hire more engineers and invest more resources in industrial design and branding,
improving the speed of new product introduction and the quality of the new products (Zhang
and Li, 2010). In addition, SCF can reduce SCFBs’ working capital pressure, and hence their
management can focus on product innovation, ensuring the successful launch of new
products (Vorhies and Morgan, 2005). Therefore, we propose the following hypothesis.
H5. SCF received by SCFBs is positively associated with the SCFBs’ product innovation
performance.
The conceptual framework is presented in Figure 1.
------------------------Figure 1 about here------------------------3.2 Confirmatory case study
3.2.1 Data collection
Quantitative data were collected from SCFL and SCFBs to test the hypotheses. Specifically,
objective data about SCF were collected from SCFL, and survey data about information
integration and product innovation performance were collected from SCFBs. A total of 39
product designers successfully obtained purchasing order finance from SCFL in the year
under study. Of these, 33 were willing to participate in this research, and these SCFBs
conducted 207 SCF projects with SCFL in the given year. Their profile is provided in Table 1.
They allowed SCFL to share data about SCF projects with us. Firm (e.g., number of16

employees, annual sales and interest rates) and project level data (e.g., SCF, total purchaseamount and payment terms) were collected from the E-SCM system.
------------------------------Table 1 about here-------------------------------A questionnaire was designed to collect data related to information integration andproduct innovation performance from the SCFBs. After consulting with SCFL and based on
the findings from the exploratory case study, the general managers of the SCFBs were chosen
as the respondents. The questionnaire was pilot tested by four general managers from SCFBs
and then revised according to their comments. The questionnaire was then sent to the 33
SCFBs, and all of them answered and returned the questionnaires.
3.2.2 Variables
Social interaction, information system integration and product innovation performance were
measured in the questionnaire using a seven-point Likert scale to capture the perceptions of
the respondents (Appendix II). The measure was developed based on the findings of the
exploratory case study and the existing literature. Social interaction was measured by four
items concerning the interactions between SCFL’s and SCFBs’ employees by which theyshare knowledge and collaborate on supply chain and business process management.
Information system integration was measured by four items about the interconnectedness
between SCFL’s and SCFBs’ information systems and the practices of sharing informationand managing business processes using information systems (Huo et al., 2013). Productinnovation performance was measured by four items about quickly introducing high quality
new products to the market (Zhang and Li, 2010, Vorhies and Morgan, 2005). The
respondents were asked about the extent to which they agreed with the statements (1 =‘totally disagree’; 7 = ‘totally agree’).
The data about SCF were extracted from the E-SCM system. SCF was measured by the
proportion of the loan obtained from SCFL to the total purchasing cost of raw materials andcomponents for a customer order (Danielson and Scott, 2004). A high SCF value indicatesthat SCFL is willing to finance a large proportion of the purchasing cost. The directors of
SCFL’s financial and risk control departments explained that the amount of the loan provided
to a project is largely influenced by the overall purchasing cost. A large loan may result fromthe high purchasing cost of a large scale project (Danielson and Scott, 2004). Therefore, the
key SCF decision made by SCFL is the ratio of the loan given by SCFL to the totalpurchasing cost, which reflects SCFL’s overall evaluation of the project.
17

We also included firm size, as measured by annual sales, as a control variable for SCF
and product innovation performance. Large firms tend to have more resources and higher
resilience, and hence SCFL faces lower financial risks (Cenni et al., 2015). Large firms may
also have higher capabilities in managing cash flows and more resources for R&D, and hence
have better product innovation performance (Zhang et al., 2018). In addition, we controlled
for the effects of the interest rate, uncertainty of purchase and uncertainty of receivables on
SCF, as they reflect the attractiveness of an SCF project (Bals, 2019). The interest rate affects
the profit SCFL may gain from SCF projects and hence influences SCFL’s SCF decisions.
Uncertainty of purchase was calculated as the standard deviation of the total purchase amountacross a series of projects (Yang and Zhao, 2016). Uncertainty of receivables was calculated
based on the payment terms by using one minus the sum of the proportion of deposits paid bya customer and the proportion of the balance to be paid by the customer through letter ofcredit (Luo et al., 2012). Uncertainties of purchase and receivables affect the risks of an SCF
project and hence may influence SCFL’s SCF decisions.
3.2.3 Analysis and results
We first conducted psychometric tests of the three multi-item constructs (i.e., social
interaction, information system integration, and product innovation performance). An
exploratory factor analysis (EFA) was conducted. The results indicate that the items havestrong loadings on their corresponding constructs (Table 2). We used composite reliability
and Cronbach’s α to evaluate reliability. The results show that the composite reliability
values range from 0.900 to 0.921, and the Cronbach’s α values range from 0.877 to 0.919,
showing that the reliability of the constructs is acceptable. Average variance extracted (AVE)
was used to test for convergent and discriminant validity. The AVE values range from 0.700
to 0.747, indicating that the convergent validity is acceptable. Discriminant validity isdemonstrated when the square root of the AVE of each construct is higher than thecorrelations between the focal construct and each other construct. Table 3 shows the means
and standard deviations of the variables, their correlations, and the square roots of the AVEs.
A comparison of the correlations and square roots of the AVEs indicates that the constructs
have adequate discriminant validity.
------------------------------Table 2 and 3 about here--------------------------------18

We conducted a multicollinearity test of the variables. The results reveal that the smallest
tolerance is 0.692 and the largest variance inflation factor is 1.444, indicating thatmulticollinearity is not a serious problem. We used multilevel structural equation modellingwith robust maximum likelihood and MPLUS software to test the hypotheses because data
were collected from both firm and project levels. The unidimensional parcels of the multiitem constructs, calculated using the principal component scores, were used in data analysis(Coffman and Maccallum, 2005). All of the other variables were standardised. The results ofthe data analysis, including the standardised path coefficients, are shown in Figure 2. The
model fit indices are as follows: chi-square/df = 1.07, comparative fit index = 0.989, TuckerLewis index = 0.936, root mean square error of approximation = 0.018 and standardised root
mean square residual = 0.026, which are better than the corresponding threshold values
suggested by Hu and Bentler (1999). The findings show that the R2 for SCF is 29.4%.
Information system integration is positively associated with SCF (b = 0.267, p < 0.05),
whereas social interaction is negatively associated with SCF (b = -0.340, p < 0.05). Therefore,
H2 is supported, whereas H1 is not. The results also show that the interest rate (b = 0.100, p <0.01) and uncertainty of purchase (b = 0.278, p < 0.001) are positively associated with SCF,
whereas the uncertainty of receivables (b = -0.213, p < 0.05) is negatively associated with
SCF. We find that R2 for product innovation performance is 21.9%. Social interaction (b =0.373, p < 0.05) and SCF (b = 0.410, p < 0.05) are positively associated with productinnovation performance, whereas the impact of information system integration is not
significant. Therefore, H3 and H5 are supported, whereas H4 is not.
We find that the impacts of firm size on SCF and product innovation performance are notsignificant. As most of the product designers are SMEs, they all have limited resources toinvest in R&D and improve resilience even if some are larger in size. A high interest rate
indicates that SCFL can profit more from SCF, and hence it increases SCF. Uncertainty ofreceivables reflects the unpredictability of payment from customers (Luo et al., 2012). High
uncertainty of receivables indicates high risks of the SCF not being repaid, and hence SCFL
provides less SCF. Uncertainty of purchase reflects volatility of purchasing cost (Yang andZhao, 2016). High uncertainty of purchase indicates the SCFB may need more cash than
expected for purchasing components. As SCF is controlled by SCFL, it tends to provide more
SCF to ensure the SCFB can successfully fulfil the purchase order.
------------------------Figure 2 about here------------------------19

4. Discussion and conclusions
4.1 The impact of information integration on SCF: A credit rationing perspective
The findings of the confirmatory case study show that social interaction and information
system integration have different effects on SCF. The credit rationing theory provides auseful perspective to explain the findings (Jaffee and Russell, 1976). Credit rationing has
been widely applied by SCF lenders to deal with SCFBs’ opportunistic behaviours andcontrol financial risks (Kirschenmann, 2016). SCFBs normally have information advantages
over an SCF lender because they have private knowledge about the uncertainties and risks of
SCF projects. When information asymmetry is high, a lender tends to implement high credit
rationing by reducing SCF (Kirschenmann, 2016, Stiglitz and Weiss, 1981). Thus, credit
rationing will be high for opaque borrowers who do not share private knowledge such asbalance sheets, inventory levels, production scheduling and other financial and operational
information because information asymmetry makes it difficult for lenders to determine theprobability of default of a specific SCF project (Jaffee and Russell, 1976, Ferri and Murro,2015). The influence of information integration on credit rationing may vary depending on its
efficacy in improving supply chain visibility and transparency and overcoming information
gaps between SCF lenders and SCFBs (Ferri and Murro, 2015, Cenni et al., 2015). The
impact of information integration on a SCF lender’s SCF decisions therefore will be
determined by how effectively it enables the SCF lenders to screen and control SCFBs and to
identify valuable projects (Cenni et al., 2015, Bias and Gollier, 1997).
The statistical analysis reveals that social interaction is negatively associated with SCF,
which is inconsistent with the findings of the exploratory case study. The result indicates that
SCFL implements high credit rationing when an SCFB relies on social interactions tointegrate information. SCFL’s president mentioned that social interactions mainly rely on
telephone, e-mail and face-to-face meetings to integrate information. Although they can
reduce the information gap between SCFBs and SCFL, the efficiency of informationexchange is very low. It is extremely difficult for SCFL to acquire a large amount of financial
and operational information in real time via social interactions. Moreover, SCFBs may hide
private knowledge or provide exaggerated or even fabricated information because it is very
difficult for SCFL to verify information and monitor SCFBs and SCF projects through social
interactions. For example, SCFBs may divert SCF loans to other projects or opportunisticallydeclare bankruptcy. The president mentioned that one of SCFL’s biggest losses from SCF
projects was the result of this kind of fraud. Therefore, compared with information system
integration, social interactions are not an effective way to improve the speed, quantity and20

quality of the information flows and the visibility of operational processes involved in a
specific SCF project. As a result, SCFL will feel that an SCFB is a non-transparent borrower
if it mainly relies on social interactions to integrate information, and hence it will apply highcredit rationing to control risks (Ferri and Murro, 2015, Cenni et al., 2015).
The statistical analysis reveals that information system integration significantly improves
SCF, which is consistent with the findings of the exploratory case study. The result indicatesthat SCFL reduces credit rationing if an SCFB closely integrates its information system with
SCFL. SCFL’s president emphasised that digitalisation is its key strategy to manage
information, physical and financial flows in supply chains (Caniato et al., 2016). The E-SCM
system plays a pivotal role in collecting and analysing information, supporting various
operations and processes and fuelling the rapid growth of SCFL’s SCF business (Martin and
Hofmann, 2019). Through information system integration, SCFL can exchange a large
volume of data with SCFBs in real time. The information allows SCFL to monitor andmanage SCFBs’ purchasing, inventory, production and delivery processes and to plan andoptimise their supply chains (Jia et al., 2020a, Bals, 2019). Therefore, information system
integration can reduce information asymmetry in supply chains (Devaraj et al., 2007) andallows SCFL to evaluate SCF projects at the operational level and control the projects in realtime. In addition, as mentioned by SCFL’s president, a high degree of information system
integration requires SCFBs to make relationship-specific investments in IT infrastructure andoperational processes, which reflects commitment to the relationship (Huo et al., 2013).
SCFL viewed this as a gesture of goodwill or guanxi, which is critical for acquiring private
knowledge from SCFBs in Chinese culture (Li and Chen, 2019).
4.2 The impact of information integration and SCF on product innovation performance: A
resource-based view
The resource-based view provides a useful perspective to explain the impact of SCF andinformation integration on product innovation performance. Resources refer to tangible andintangible assets, such as money, people, technology, knowledge and relationships, that are
inherent to a firm, and which are valuable, rare and difficult to imitate or substitute (Barney,1991). The resource-based view argues that the competitive advantages of a firm derive
primarily from the application of the resources at the firm’s disposal (Barney, 1991). Our
statistical analysis confirms that SCF is positively associated with SCFBs’ product innovation
performance, which is consistent with the finding of the exploratory case study. Most SCFBs
are cash-constrained SMEs with limited financial resources. Thus, SCF is a valuable resourcefor product innovation because it provides SCFBs with more capital to invest in technologies,
21

IT, R&D and marketing, which improves the speed of new product introduction and thequality of new products (Zhang and Li, 2010, Zhang et al., 2018). SCF is also rare, as it isvery difficult for SCFBs to obtain financial resources from banks or other financial
institutions, or find strategically equivalent substitutes in China (Liu et al., 2015). Moreover,
SCF is imperfectly imitable because it requires SCFBs to share information and integrates
business processes with SCFL, and it uses SCFL’s supply chain management services(Martin and Hofmann, 2019). Therefore, SCF is a strategic resource that enables SCFBs to
improve product innovation performance.
Our findings show that social interaction is positively associated with product innovation
performance, which is consistent with the findings of the exploratory case study. Throughinteractions between employees, SCFBs can obtain SCFL’s tacit knowledge of market trends,
new technologies and the capacity and expertise of component suppliers and assembly plants(Zhang et al., 2015). Such knowledge is critical for SCFBs in developing and launching new
products (Zhang and Li, 2010), and hence it is a valuable resource for product innovation(Barney, 1991). This knowledge is also rare, because SCFL accumulates it by offering
integrated supply chain management services and through closely collaborating with various
stakeholders in the smartphone industry, and hence it is not available to SCFBs’ competitors.
It is also difficult for SCFBs to quickly find substitutes for this knowledge, because it takes
time for SCFBs and SCFL to develop a collaborative relationship. Moreover, social
interactions bring SCFBs soft information, which has a personal quality and is deeply rooted
in relationships. Such knowledge acquisition is based in a complex social phenomenon, andhence SCFBs’ competitors cannot perfectly imitate this resource (Barney, 1991).
We find that the impact of information system integration on product innovation
performance is not significant, which is inconsistent with the findings of the exploratory casestudy. Although information system integration greatly improves supply chain transparency
and visibility, SCFBs and SCFL mainly exchange hard information or explicit knowledge
using information systems, which enables them to jointly optimise procurement, production
and delivery decisions and improve forecasting and planning. This knowledge helps SCFBs
improve operational processes and supply chain management (Gimenez and Venture, 2005),
and allows SCFL to manage and control SCF risks. However, it cannot be applied directly to
improve new product development (Zhang et al., 2015). It is difficult for SCFBs to gain
knowhow about market trends, new technologies and components, and suppliers’ capabilities,
and hence, information system integration cannot contribute valuable knowledge resources
for product innovation.
22

4.3 Theoretical contributions
This study contributes to the SCF literature in three ways. First, it focuses on SCSPs andpurchase order finance. The findings provide empirical evidence on how an innovative SCF
lender (i.e., SCSP) implements and manages SCF (Jia et al., 2020a, Caniato et al., 2019). The
results also improve the knowledge about the application of purchase order finance, which isan innovative SCF solution (Gelsomino et al., 2016). By providing empirical evidence that
SCF is positively associated with SCFBs’ product innovation performance, thestudy improves current understandings of the performance outcomes of SCF solutions (Jia etal., 2020b, Bals, 2019). We also find that social interaction is positively assoicated with
SCFBs’ product innovation performance, whereas information system integration does not
significantly affect it. The study thus provides insights on the benefits SCFBs can obtainthrough integrating information flows with SCSPs.
Second, we find that information system integration is positively associated with SCF,
whereas social interaction is negatively associated with SCF. The result reveals the two waysthat SCSPs and SCFBs integrate information and their distinctive effects on SCF, shedding
light on how an SCSP makes SCF decisions and jointly manages information and financial
flows (Jia et al., 2020a, Bals, 2019). The findings thus highlight the importance of ITs in
reducing information asymmetry and supporting SCF solutions (Caniato et al., 2019). In
addition, this study provides empirical evidence on the implementation of SCF in the Chinese
smartphone industry, enriching current understandings of the antecedents and consequencesof SCF solutions in a specific industry (Bals, 2019, Gelsomino et al., 2016).
Third, the case study offers a balanced view of the relationships between information
integration, SCF, and product innovation performance from both SCSPs’ and SCFBs’
perspectives. The findings thus enhance current knowledge on the interactions andcollaboration between different SCF stakeholders (Caniato et al., 2019, Jia et al., 2020a). By
combining qualitative and quantitative data, we triangulate the empirical evidence to verify
and generalise the findings. This study combines theory building (i.e., an exploratory casestudy) and theory testing (i.e., a confirmatory case study) approaches, which allows us tocapture the richness of the empirical context and generate internally valid explanations(Ridder, 2017). The mixed method design also allows us to contextualise the relationships
between information integration, SCF and product innovation performance and to statisticallytest them, and hence to provide a holistic picture of SCF implementation (Saunders et al.,2019).
4.4 Managerial implications
23

The findings provide guidelines for SCF lenders and borrowers to successfully adopt SCF
and benefit from its application. When providing SCF (e.g., purchase order finance), wesuggest a lender offer supply chain management services to borrowers (e.g., procurement,
logistics, inventory management and payment services) and integrate information systems
with them (Li and Chen, 2019). We also suggest that SCF lenders jointly manage information,material and financial flows (Jia et al., 2020a). We recommend that the SCF lenders make
SCF decisions based on the practices and degree of information integration (Stiglitz andWeiss, 1981). The lenders should provide more SCF to borrowers that directly use theirinformation systems or have a high level of information system integration. The lenders
should also offer more SCF to borrowers who use information systems to synchronise dataand collaborate with the lenders on supply chain management. An SCF lender should beaware that although social interactions with borrowers make it easier to obtain suggestions
for improvement and integrate business processes, they are not effective for managing andcontrolling SCF projects. We thus suggest that a lender should provide less SCF to aborrower if the borrower relies only on social interactions to integrate information.
We suggest that cash-constrained firms who focus on product innovation to adopt SCF
solutions. We suggest these firms should borrow more SCF from lenders because SCF canbring them more financial resources to ensure the successful launch of new products andcommercialisation of new product designs. The borrowers should be aware that jointly
managing supply chains and business processes and integrating information with an SCF
lender are critical for obtaining more SCF (Bals, 2019). Therefore, we suggest that borrowers
closely integrate their information systems with the SCF lender or directly use the lender’sinformation system (Huo et al., 2013). We also suggest that borrowers use information
systems to share information and collaborate on supply chain management with the lender.
However, they should understand that information system integration does not directly
contribute to their product innovation. Moreover, we suggest that borrowers encourage theiremployees to frequently interact with the SCF lender to obtain support for supply chain
management, solve problems and integrate business processes. Such social interactions canhelp them improve product innovation performance (Zhang et al., 2018). However, borrowers
should be warned that relying only on social interaction to integrate information with the SCF
lender will reduce the SCF they receive. Therefore, we recommend that borrowers integrate
information systems with the lender at the same time.
4.5 Limitations and future research directions

24

This study has three main limitations that open avenues for future research. First, the findings
are based on a case study in the smartphone industry in China. The implementation of SCF
may be influenced by the industrial, business and institutional environments. Future studies
could verify and generalise the findings in other contexts (Bals, 2019, Jia et al., 2020b).
Second, this study focuses on purchase order finance. Other SCF solutions, such as dynamic
discounting, inventory financing and reverse factoring, are also widely applied (Extra et al.,2019). Future studies could compare the findings with other SCF solutions and investigate
how managers make decisions for different SCF solutions. Third, this study focuses on theinteractions and collaboration between product designers and SCFL. SCFL’s E-SCM systemprovides a platform through which different stakeholders, including product designers,
suppliers, assemblers, 3PL firms, customers and government agencies, collaborate with eachother to create an ecosystem (Bals, 2019). Future research could adopt a longitudinal design
to explore the establishment of this ecosystem and how the ecosystem affects SCF and theperformance of supply chain members.

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Appendix I. Semi-structured interview protocol
SCFL
1. Please introduce and describe the key stakeholders and processes of your supply chains.
2. What are the supply chain management services SCFL provides to supply chain members,
especially product designers? Why does SCFL provide the services? Could you give us someexamples? What benefits do the services bring to SCFL and the product designers?
3. How do SCFL and supply chain members, especially product designers, collaborate on
supply chain management? Could you give us some examples?
4. Please introduce and describe the SCF solutions offered by SCFL. Could you give us someexamples to illustrate how SCFL makes SCF decisions?
5. Why does SCFL provide SCF to supply chain members? What are the main drivers andenablers? What are the challenges and how they are solved?
6. How does SCFL manage and control the financial risks of SCF projects? Could you give
us some examples?
7. Please describe how SCFL establishes and maintains collaborative relationships with
SCFBs when conducting SCF projects. What problems has SCFL encountered and how does
SCFL deal with the problems? Please give us some examples.
8. Please introduce how SCFL and SCFBs integrate information flows. Could you give us
some examples? How does information integration affect the management of SCF projects?
9. Please introduce SCFL’s IT infrastructure and the functions of the information system.
How does the information system support supply chain management and collaboration with
supply chain members?
10. How do SCFL and SCFBs integrate their information systems? How does the integrationinfluence SCFL’s SCF decisions and the management of SCF projects?
11. How do SCFL’s and SCFBs’ employees communicate and interact with each other? Whatroles does this interaction play in SCFL’s SCF decisions and the management of SCF
projects?

SCFB
1. Please introduce and describe the key stakeholders and processes of your supply chains.
2. What are the key challenges of your current operations? How can SCFL help to tackle thechallenges?

29

3. Why do you collaborate with SCFL and apply SCF? What are the key drivers for using the
SCF offered by SCFL? What are the differences between the SCF offered by SCFL and theloans obtained from banks and other financial institutions?
4. Please describe the SCF projects with SCFL. How does the SCF influence your operations
and supply chain management processes? Please give us some examples.
5. What are the benefits and challenges when adopting SCF? How do you evaluate thesuccess of SCF projects? How does SCF influence product innovation?
6. What are the key practices you have adopted to facilitate the collaboration with SCFL?
What are the roles played by the practices when you apply SCF?
7. Have you integrated your information system with SCFL? If yes, through what means?
How does the integration affect SCF projects and product innovation?
8. Do your employees interact and communicate with SCFL? If yes, through what means?
How does the interaction affect SCF projects and product innovation?

Appendix II. Measurement items
Social interaction
SI1: Our employees actively interact with SCFL to ensure that we obtain support from SCFL
on supply chain management.
SI2: Our employees frequently interact with SCFL to provide suggestions for improvement.
SI3: The interactions between our employees and SCFL enable us to integrate businessprocesses with SCFL.
SI4: The interactions between our employees and SCFL enable us to quickly solve problems.
Information system integration
ISI1: Our information system is closely integrated with SCFL’s E-SCM system.
ISI2: We use SCFL’s E-SCM system to manage our supply chains.
ISI3: We rely on information systems to exchange information and synchronise data with
SCFL.
ISI4: We rely on information systems to collaborate with SCFL on supply chain and businessprocess management.
Product innovation performance
PIP1: We successfully launch new products.
PIP2: We are first in new product introductions in the market.
PIP3: We quickly launch new products into the market.
PIP4: We develop new products with superior quality.
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SocialInteraction

H3
H1
SCF

H5

Product
Innovation
Performance

H2
Information
SystemIntegration

H4

Figure 1. Conceptual framework
SocialInteraction

0.373*-0.340*SCF

0.410*

0.267*
Information
SystemIntegration

Product
innovation
performance

n.s.
SCF:
R2 = 0.294
Interest Rate: 0.100**
Uncertainty of
Purchase: 0.278***
Uncertainty ofReceivables: -0.213*
Firm Size: n.s.

Product innovation
performance:
R2 = 0.219
Firm Size: n.s.

Note: ***: p < 0.001, **: p < 0.01, *: p < 0.05, n.s.: not significant

Figure 2. Results of statistical analysis

31

Table 1. Profile of SCFBs
Annual sales (Chinese yuan)
Number Percentage<50 Million
1339.4%
50 Million to 3 Billion
1339.4%
3 Billion to 10 Billion
7
21.2%
Total
33
100%
Years of collaboration with SCFL
Number Percentage
<1
11
33.3%
1-3
20
60.6%
>3
2
6.1%
Total
33
100%

Number of employees
Number Percentage
<50
20
60.6%
50-100927.3%
101-300
4
12.1%
Total
33
100%
Number of SCF projects with SCFL
Number Percentage
<5
13
39.4%
5 to 1017
51.5%
11 to 20
3
9.1%
Total
33
100%

Table 2. The results of EFA analysis
Factor loading

SI1
SI2
SI3
SI4
ISI1
ISI2
ISI3
ISI4
PIP1
PIP2
PIP3
PIP4
Eigenvalue
Variance explained

Social interaction (SI)

Information system
integration (ISI)

Product innovation
performance (PIP)

0.915
0.924
0.875
0.871
0.071
-0.063
0.084
0.019
0.084
0.020
0.115
0.156
4.069
33.906%

0.047
0.202
-0.250
0.110
0.714
0.828
0.941
0.949
-0.163-0.061
0.138
0.313
3.046
25.383%

0.116
0.018
0.055
0.163
-0.0500.167
0.048-0.006
0.898
0.867
0.929
0.822
2.581
21.511%

Note: Extraction method: principal component analysis; rotation method: Varimax with Kaiser normalisation. Please refer toAppendix II for the details of the measurement items.

32

Table 3. Descriptive statistics
Product innovation performance (PIP)
SCF
Social interaction (SI)
Information system integration (ISI)
Uncertainty of purchase (UP)
Uncertainty of receivables (UR)Interest rate (IR)Firm size

Mean

S.D.

PIP

SCF

4.658
0.446
6.127

1.125
0.217
0.823

4.487
19.29
0.481
0.001
3.450

1.942
28.458
0.428
0.002
1.569

0.849
0.229**
0.203**
0.113
0.323**
0.152*-0.121
0.012

SI
0.893

-0.168*0.133
0.155*-0.0390.095-0.0670.864
0.071
0.245**-0.160*-0.0390.291**

ISI

UP

UR

IR

0.837
0.076
0.197**-0.0570.118

0.105-0.0930.222**-0.0360.005-0.199**Note: The numbers in bold on the diagonal are the square root of AVE; *: Correlation is significant at the 0.1 level (2-tailed); **: Correlation is significant at the 0.05 level (2-tailed).

33