Environmental Development of Emerging Economy Suppliers: Antecedents and Outcomes

• DOI: http://doi.org/10.1111/jbl.12015
• Author: Matthias Ehrgott,Lutz Kaufmann,Felix Reimann,Craig R. Carter
• Date: 01 June 2013
• Published date: 01 June 2013

Environmental Development of Emerging Economy Suppliers:

Antecedents and Outcomes

Matthias Ehrgott

1

, Felix Reimann

1

, Lutz Kaufmann

1

, and Craig R. Carter

2

1

WHU—Otto Beisheim School of Management

2

Arizona State University

As supply chains spread toward emerging economies, Western buying firms frequently face the question of whether they should commit

resources to develop their suppliers in these regions in terms of environmental issues. Supplier development researchers have just begun

to consider environmental aspects, and thus far, the peer-reviewed literature has remained primarily qualitative, and often descriptive. Large-

scale empirical evidence indicating the antecedents and benefits of environmental supplier development for a buying firm is still scarce.

Addressing this gap, we use stakeholder theory to complement and extend the work of Ehrgott et al. (2011) and investigate how pressures from

customers, governments, and employees act as antecedents to environmental supplier development. Furthermore, we build on the resource-based

view to examine how supplier capabilities, buying firm environmental reputation, and organizational learning in the buying firm can result from

such supplier development initiatives. We test the resulting model with a sample of 244 corporate procurement executives from the United

States and Germany.

Keywords: environmental sustainability; supplier development; emerging markets; international purchasing; stakeholder theory; resource-based

view

INTRODUCTION

As supply chains spread toward emerging economies (Kusaba

et al. 2011; Gereffiand Lee 2012), the debate about the responsi-

bility of Western buying firms to educate their suppliers with

regard to environmental issues has become increasingly relevant

to supply chain and sustainability research. Suppliers from many

parts of Asia, Eastern Europe, and Latin America often lack the

necessary managerial and technological capacities, as well as the

awareness to address the environmental issues inherent in their

businesses (Child and Tsai 2005; Zhu et al. 2011). Thus, buying

firms in developed nations that source from these regions face

the question of whether to commit resources to environmental

concerns beyond their own organizational boundaries, toward

their upstream supply chains (Pagell and Wu 2009; Bai and Sar-

kis 2010). The supplier development literature has only recently

started to recognize such environmental efforts as part of firms’

supplier development initiatives. This recent literature has

focused on providing a descriptive overview, formal modeling,

or case-based investigation of issues related to environmental

supplier development (Pagell and Wu 2009; Bai and Sarkis

2010; Reuter et al. 2010; Fu et al. 2012). While Ehrgott et al.

(2011) examine the influence of key stakeholders to socially sus-

tainable supplier selection, we note a dearth of large-scale

empirical studies that examine the stakeholder antecedents to

buying firms’engagement in environmental supplier development

efforts, and the precise benefits the buying firm can reap through

such engagement. Notable exceptions that have made initial

headway into the phenomenon are Eltayeb et al. (2010) and

Vachon and Klassen (2008). We add to this evolving stream by

investigating two research questions: (1) Which stakeholder pres-

sures act as antecedents for Western buying firms to engage in

developing the environmental capabilities of their emerging econ-

omy suppliers? and (2) Which tangible benefits can firms capture

through such environmental supplier development efforts?

Our definition of “environmental supplier development”

encompasses all activities through which the buying firm helps

its suppliers reduce their negative environmental impact. Such

activities typically include environmental supplier education

(e.g., training that reduces emissions through better filtering and

waste treatment, as well as improved efficiency in production

technology), environmental on-site supplier support (e.g., provi-

sion of on-site technical assistance to redesign existing pro-

cesses), and joint environmentally oriented business projects

(e.g., collaboration to jointly develop green innovations and tech-

nologies) (Carter and Carter 1998; Min and Galle 2001; Eltayeb

et al. 2010). Also, such activities typically involve several of the

buying firm’s functions (including purchasing, research and

development [R&D], production, human resources, and logistics)

to collaborate in a cross-functional team (Schaefer and Kosansky

2008; Paulraj 2011). We denote firms’environmental efforts in

general (i.e., beyond environmental supplier development) using

the term “environmental sustainability”and efforts including both

environmental and social sustainability aspects by the broader

term “sustainability.”

The theoretical lenses through which we examine our research

questions are stakeholder theory (Freeman 1984; Frooman 1999)

and the resource-based view (RBV) of the firm (Wernerfelt

1984; Barney 1991)—concepts that scholars frequently draw on

for investigating sustainability efforts (Clarkson 1995; Hart 1995;

Sharma and Vredenburg 1998; Aragon-Correa and Sharma 2003;

Garriga and Mel

e 2004; Ehrgott et al. 2011).

Stakeholder theory posits that firms must consider a broader set

of stakeholder interests—beyond financial firm performance—to

maintain their business activities in the long run (Freeman 1984).

These interests increasingly include the preservation of the natural

Corresponding author:

Matthias Ehrgott, WHU—Otto Beisheim School of Management,

Burgplatz 2, 56179 Vallendar, Germany; E-mail: matthias.ehrgott@

whu.edu

Journal of Business Logistics, 2013, 34(2): 131–147

© Council of Supply Chain Management Professionals

environment (Phillips and Reichart 2000), which provides the

fundamental means of existence for the firm. In our research, we

look specifically at the role of employees, governments, and

customers in influencing the firm’s environmental supplier devel-

opment decisions, particularly because the existing sustainability

literature has found conflicting evidence on their influence,

depending on the specific study context.

Concerning the influence of employees, Reuter et al. (2010)

conduct case study–based work and find that top management

employees (rather than middle management or lower level

employees) are a primary antecedent to the purchasing func-

tion’s involvement in, for example, emission reductions and

waste treatment improvements. In contrast, Ehrgott et al.

(2011), Carter et al. (2007), and Carter and Jennings (2004)

find that middle managers have a significant driving role in

other sustainability activities of the purchasing function. In

terms of government influence, Walton et al. (1998) find gov-

ernments serving as antecedents for some firms’environmental

activities in the supply chain (e.g., selection of environmentally

friendly input factors and environmentally friendly product

designs). However, Carter and Carter (1998) and Carter and

Jennings (2004) find no influence from governments on other

types of environmental activities (e.g., reusing and recycling

packaging materials). Regarding customers, Pomering and Dol-

nicar (2009) and Maignan (2001) find no influence on other

sustainability efforts. However, Deephouse and Heugens (2009)

and Ehrgott et al. (2011) propose such influence. To our knowl-

edge, no large-scale empirical evidence exists on the antecedent

role that these three stakeholder groups play with regard to the

specific context of environmental supplier development. Thus,

an investigation seems warranted. For our study, we develop a

theoretical framework in which we argue that each of these

three stakeholder groups positively influences the intensity with

which buying firms engage in environmental supplier develop-

ment efforts.

The RBV complements the stakeholder perspective in that it

focuses on the unique organizational resources that allow a firm

to differentiate itself from the competition (Wernerfelt 1984;

Barney 1991). Numerous scholars emphasize that environmental

strategies allow firms to augment their resource base, in particular

by enhancing their ability to continuously innovate, meet market

requirements, and integrate with other stakeholders, such as

upstream business partners (Hart 1995; Sharma and Vredenburg

1998; Aragon-Correa and Sharma 2003; Hitt 2011). In our study,

we tie in with the findings by Sharma and Vredenburg (1998),

who propose that three primary resources firms can augment

through their environmental efforts relate to their technological

and managerial capabilities, their standing with stakeholders, and

increased internal organizational learning. For the context of our

study, these resources translate into three hypothesized outcomes

of environmental supplier development: suppliers’strategic capa-

bilities, the buying firm’s environmental reputation, and organiza-

tional learning in the buying firm’s purchasing function.

We test our model with a sample of 244 purchasing managers

from buying firms in two home countries: the United States and

Germany. Firms in both countries source significant parts of their

purchasing volumes from emerging economies (Kaufmann and

Carter 2002; Ruamsook et al. 2007). Our definition of emerging

economies is based on the Forbes-accredited ISI Emerging Mar-

kets list, resulting in the inclusion of 50 relevant sourcing coun-

tries. (See the Methodology section and Appendix 1 for further

details.)

The remainder of this article is organized as follows. Next, we

provide a brief review of the literature on environmental supplier

development. We then develop the hypotheses that determine our

theoretical framework, using an antecedent-environmental supplier

development-outcome structure and building on prior research in

the field. Subsequently, we describe the study’s methodology. In

the final sections, we present the empirical findings, discuss impli-

cations and limitations, and identify directions for future research

in the area.

ENVIRONMENTAL SUPPLIER DEVELOPMENT

LITERATURE AND CONCEPT

During the past two decades, the literature on supplier develop-

ment has evolved significantly (Hartley and Jones 1997; Krause

and Ellram 1997; Krause et al. 1998; S

anchez-Rodriguez et al.

2005; Wagner 2006). Leenders (1966) describes “supplier devel-

opment”as a buying firm’s efforts to improve its suppliers’per-

formance. More recently, scholars in the area have started to

argue for a more fine-grained perspective on supplier develop-

ment—one that accounts for the conceivably very different goals

behind such initiatives (Krause 1999; Wagner and Krause 2009).

In this respect, Krause (1999) finds improvements in quality,

delivery, cost structure, new technology adoption, financial

health, and product design capability as frequent underlying

objectives. Krause and Handfield (1999) add to this list the

improvement of communication and alignment of procedures in

the buyer–supplier relationship, which aim at lowering future

coordination costs.

Depending on the priority of these goals for the buying firm, the

magnitude and type of interventions with the suppliers’processes

and operations as part of supplier development programs differ

(Wagner and Krause 2009). For example, delivery-oriented

supplier development might include changes in the supplier’s

logistics and production planning routines. Product design-oriented

supplier development, by contrast, might focus more on changes in

R&D processes, the product input factor portfolio, and production/

assembly equipment and processes.

The notion that the development of suppliers might also serve

environmental goals has only recently entered the supply chain

literature. In this vein, Bai and Sarkis (2010) note that “investi-

gation into [environmental] supplier development programs is

virtually non-existent”(p. 1200). One of the few established

terms in the field was coined by Vachon and Klassen (2008).

They refer to joint ecological efforts between buying firms and

suppliers as “environmental collaboration,”which typically

includes environmental supplier training (to spur initiatives such

as emissions reduction, advanced waste treatment, and resource

efficiency), on-site intervention with suppliers’production pro-

cesses and operations to improve their environmental footprint,

and joint projects to develop green innovations (Carter and Car-

ter 1998; Min and Galle 2001; Eltayeb et al. 2010; Azadegan

2011). Several major corporate projects targeted at environmental

supplier development have recently been made public. BASF,

the multinational chemicals conglomerate, has launched a joint

132 M. Ehrgott et al.