The value of Blockchain technology implementation in international trades under demand volatility risk

Abstract

The extant literature has conceptually argued that Blockchain technology can provide both financial and operational benefits to firms in international trades. However, no studies have systematically and analytically investigated the effectiveness of Blockchain. This study introduces analytical models that consider the implementation of Blockchain technology in international trades, to test whether the technology improves an exporting firm's performance under demand volatility risk. The simulation and numerical analysis results show that the reduced lead time and decreased ocean transport cost under Blockchain enable the exporting firm to increase shipment via the ocean, which reduces the quantity shipped via air. In addition, the reduced total unit cost for ocean and air transports leads the firm to effectively reserve spaces for air transport, which implies that Blockchain makes the firm more proactive while preparing a backup plan to more effectively and efficiently react to demand realisation. We conclude that Blockchain can be beneficial for firms facing considerable demand volatility in international trades, and that such effectiveness could be more effective for firms that prioritise minimising lost sales (by efficiently utilising ocean and effectively exploiting air) over minimising excess quantity shipped by ocean.