Strategic analysis of vertical integration in cross-border e-commerce logistics service supply chains

Abstract

The boom in cross-border e-commerce (CBEC) brings opportunities and challenges to its logistics. Integrated logistics service providers (ILSPs) are becoming increasingly important in the CBEC industry by offering cost-effective integrated logistics services. We construct a three-echelon supply chain consisting of one ILSP, one CBEC platform, and one functional logistics service provider (FLSP), and consider three scenarios, namely, no integration (VD), vertical integration dominated by ILSP (VI-L), and vertical integration dominated by platform (VI-P). This study aims to find out which vertical integration strategy is more effective in mitigating the double marginalization problem in supply chain, what the influencing factors are, and how these factors affect vertical integration performance. The results show that higher channel power does not always result in greater profits for the ILSP but does for the CBEC platform. With low logistics cost performance, mode VI-L is optimal for the ILSP and becomes the equilibrium strategy in which increased logistics cost investment benefits the ILSP but harms the platform. With high logistics cost performance, mode VI-P is optimal for all parties and generates the highest logistics service level, in which the increased logistics cost investment benefits the platform but harms the ILSP, resulting in the equilibrium strategy evolving from mode VI-P to mode VI-L. The FLSP’s preference aligns with the improvement of logistics service level when the market size is small or moderate. We also extend our model to encompass more scenarios and find that the exogenous logistics service price or service level can exacerbate the profit conflict between the ILSP and the platform, resulting in no strategic equilibrium for mode VI-P. Additionally, it is not always the best choice for CBEC platforms to self-build logistics systems to directly integrate FLSP’s services, compared to taking the lead in vertical integration with a professional ILSP.