Summary:
Supply chain security and smoothness is the key to strengthening modernization of industry chains and supply chains. However, there is still significant market segmentation in the process of building a unified domestic market, which hinders the free cross-regional circulation of resource factors. The Guidelines of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of a National Unified Market released in 2022 set out the overall arrangements for this endeavor. The Guidelines emphasize that it is importance to urgently accelerate the construction of a national unified market, break down local protectionism and market barriers, ease key bottlenecks that hinder economic flows, and promote more extensively smooth flows of commodities, factors of production, and resources. Therefore, with regard to building a unified domestic market and upgrading the modernization of the industry chain and supply chain, understanding the impact of market segmentation on the two chains has important implications. This paper empirically examines the impact of interregional market segmentation on the construction firms' cross-regional supply chains by manually organizing data on major suppliers of Chinese listed firms from 2007-2019, and constructing a paired sample at the firm-supplier's province-year level. The results show that the more severe the market segmentation between regions, the lower the firms' purchasing proportion in paired regions, and the market segmentation hinders the construction of firms' cross-regional supply chain. We conduct a variety of tests on the endogeneity problem, all of which confirm the robustness of the conclusions. Moreover, the impact of market segmentation on firms' cross-regional supply chain is more pronounced for firms in competitive industries and firms with higher product uniqueness. We then examine the mechanisms and find that market segmentation can increase transaction costs between firms and cross-regional suppliers, increase the uncertainty in procurement lead time and the supply-demand imbalance between upstream and downstream firms, thereby hindering the construction of cross-regional supply chain. Economic consequence tests show that the reduction in cross-regional procurement by firms due to market segmentation increases firms' operating costs and reduces firms' profitability and total factor productivity. Finally, we examine the measures taken by firms to cope with market segmentation and find that improving vertical integration, utilizing digital technology, and with the help of cross-regional chamber of commerce can effectively weaken the negative impact of market segmentation on firms' cross-regional supply chain. This paper provides a beneficial supplement to existing literature in two ways. First, this paper enriches the study of market segmentation and micro-firm behavior by expanding the research perspective from the firm to the supply chain. Existing studies on how market segmentation affects the economic activities of micro firms have mainly analyzed the import and export trade, vertical integration, innovation activities, and production efficiency of firms, and less involved in firms' supply chains. This paper explores the impact of market segmentation among local governments on cross-regional cooperation among upstream and downstream of supply chains, which combines market segmentation with corporate supply chain relationships, and expands the understanding of the economic consequences of market segmentation. Second, this paper enriches the related research on the influencing factors of corporate supplier selection. As an important part of supply chain management, supplier selection has received widespread attention, and most of the existing related studies are based on management to discuss the methods and criteria of supplier selection. From the perspective of economics, although some studies have mentioned that institutional risk affects firms' supplier selection decisions, most of them focus on inter-country institutional risk. Unlike the existing studies, this paper focuses on the impact of institutional risk across regions within a country on firms' supplier selection, complementing related research on the firms' supply chain management. This paper identifies the important role of market segmentation on firms' cross-regional supply chain, providing policy inspiration for accelerating the construction of a unified domestic market and improving the modernization of supply chain. For local government departments, it is necessary to strictly implement the important spirit of the CPC Central Committee and the State Council on accelerating the construction of a national unified market, balance the relationship between the government and the market through institutional innovation, break down the division between regions, build a highly efficient and standardized, fair competition and fully open national unified market, promote the free flow of commodity factors, and provide a fair market environment for firms to build cross-regional supply chains. In addition, local government departments should also actively help with the development of cross-regional chamber of commerce, give full play to their proactivity in serving the real economy, and facilitate the construction of firms' cross-regional supply chains as well as engaging in cross-regional trade activities. For firms, it is necessary to promote the full integration of digitalization and supply chains, use digital technology to break through regional boundaries and optimize the supply chain structure. Firms should integrate digital technology into various stages according to their own production and operation needs, including procurement, inventory management, order tracking and so on, which can improve the organization efficiency and coordination between upstream and downstream, and enhance the supply chain competitiveness. Additionally, firms should actively establish and join cross-regional chamber of commerce, and leverage this important form to break through market segmentation constraints and improve supply chain efficiency.
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