Adoption of environmental management strategy for manufacturing: an integration of institutional forces and strategic behaviour approach.

AuthorKang, Yuanfei
PositionSurvey
  1. INTRODUCTION

    Research on business and the natural environment has grown dramatically over the years (see Bansal and Gao (2006) for an overview). The mainstream literature on adoption of firms' environmental strategies is largely based on two approaches. The first emphasizes the institutional constraints as external forces imposed upon firms, as these institutional forces, through regulative, normative or mimetic pressure, define the range of organisational reality and limit the strategic options (Bansal, 2005; Bansal & Clelland, 2004; Child & Tsai, 2005; Frank, Hironaka & Schofer, 2000). This view reflects the institutional perspective in which firms are regarded as a rather passive and reactive organisational entity responding to external constraints. The second approach pays more attention to the role of firms' internal factors and regards firms as being operated by conscious managers and having the potential to implement their preferred environmental strategies, either driven by a sense of corporate social responsibility or by pursuing competitive advantage in the market competition (Aragon-Correa & Sharma, 2003; Branzei, Ursacki-Bryant, Verinsky & Zhang, 2004; Christmann, 2000; 2001; Orsato, 2006; Sharma, 2000). This view acknowledges the potentially proactive role of managerial factors in shaping firm's strategic choices and allows for differences in strategies among individual firms in relation to their environment.

    However, there are still gaps in the research on adoption of firms' environmental strategies. First, as pointed by Child and Tsai (2005: 96), "there has been only limited dialogue between these two approaches", as research on environmental strategies has mainly been adopted on the alternative and competing approaches either from an institutional or strategic perspective. In fact, the two approaches to the relationship between business and the natural environment are complementary in nature and a combination of these two views would illuminate the formation process of environmental strategy influenced by both external institutional forces and internal factors of managerial decision-making. Second, mainstream theory on business and the environment is generated from a context of developed countries and there is even less theoretical and empirical research in this field applying an institutional framework in developing countries (Meyer, 2001). This arises the question as to whether the mainstream theory is applicable in the context of emerging and developing countries given the critical differences between developed and developing countries both in institutional environment (Peng, Wang & Jiang, 2008) and firm resources. Take the example of institutional influences on environmental strategies. It has been well documented that developing countries severely lag behind developed countries in environmental regulations and standards, and lack of access to environmental technologies and capabilities, indicating a weak institutional pressure for green strategies and resulting in "pollution havens" in these countries (Christmann & Taylor, 2001; Drezer, 2000; Leonard, 1988). On the other hand, as suggested by researchers (Peng, 2000; Peng et al., 2008; Wright, Filatochev, Hoskisson & Peng, 2005), institutional forces play a central role in shaping the formation of business strategies in emerging economies because of the strong legacy of significant governmental or political involvement in business affairs.

    In responding to the research gap, the paper aims to develop and empirically test a theoretical framework by combining the two perspectives of institutional constraints and strategic behaviour in order to shed light on adoption of firms' environmental strategy in emerging economies. This study contributes to the literature in three ways. First, drawing from institutional theory and strategic management literature, this study argues that adoption of firms' environmental management strategy results from the joint contribution from external constraints of institutional pressures and internal strategic intent associated with firm characteristics. Thus, it is insufficient to separately refer to either institutional forces or firm strategies while addressing the issue of interface between firm business activities and their environmental impact. Second, this study provides new insights regarding differences of impact strengths for institutional constraints derived from different types of institutions and thus argues that the analytic framework of institutional forces needs to be broadened from the conventional view of only formal and regulative institutions by paying more attention to the informal and normative institutions. The analysis of institutional influence suggests that the impact strengths are different for different external constraints while various institutions forces affect a firm's environmental management strategy. Empirical evidence from the research setting of an emerging economy indicates that public pressures, including media attention, nongovernmental organisations and local communities, play an extremely important role in shaping a firm's environmental management strategy. Third, drawn from the resource-based view of firms, this study applies the concept of complementary assets from Teece (1986) and Christmann (2000) and suggests that firm's strategic intent to create competitive advantage through the formation of an environmental management strategy is determined by the possession of complementary assets. Moreover, an implication from this finding provides a linkage between the institutional arguments and strategic behaviour approach.

  2. THEORY AND HYPOTHESES DEVELOPMENT

    2.1 Institutional perspective

    Following the broad definition provided by North (1990), institutions are known as "the rule of the games". Institutional theory emphasises the social context within which firms are embedded and operate, as its central premise is that firms adopt strategies and practices that are isomorphic to those of other firms as a result of their quest to attain legitimacy. As pointed out by North (1990), complex institutional structures have been devised over time to constrain social agents and reduce the uncertainty of social transaction. These institutions facilitate economic growth in two ways, as 1) they reduce opportunism in transaction among people largely unknown each other and 2) they provide a template for multilateral reputation creation supported by frameworks of credible commitment, enforcement and coordination.

    Institutions make up the constraints and incentive systems of a society that structure human interactions, and thus provide rules and enforcement mechanisms that limit actors and limit their best-choice options to generally predicable outcomes. It is argued that institutions consist of three fundamental pillars of regulative, normative and cognitive systems, which elicit related but distinguishable bases of legitimacy (Scott, 2001). The regulative pillar entails formal systems of rules and enforcement mechanisms sanctioned by state. The normative pillar defines socially acceptable values and norms and suggests legitimate means through which to pursue them. The cognitive pillar recognises that internal interpretive processes are shaped by the cognitive frameworks in which social interests are defined. Because it emphasises the final acceptance or legitimisation of some social practices or social goal, institutional theory can be used to back-cast from such an outcome to current practice in order for people to consider what might be done to encourage this institutionalization process (Scott & Meyer, 1994). Based on an institutional perspective, adoption of a firm's environmental strategy can been viewed as the outcome of various external institutional constraints. The relevance of institutional theory to a firm's environmental strategy lies in the fact that environmentalism has been institutionalised into a mainstream in the social life since the early 1990s, involving all business functions (Simon, 1992). In this institutional context, institutions impose limits on the choices of environmental management strategy available to firms. A firm has to comply with the laws and regulations of environmental protection, to conform to norms and values and to be isomorphic to the standard environmental management practices in order to gain the legitimacy for its survival. Governmental and social institutions impose regulative constraints upon, offer normative guidelines for, and provide mimetic mechanisms for firms. The three types of institutional forces are described below.

    2.1.1 Regulative institutions

    The regulative domain of institutions involve the capacity to establish laws and rules that construct and constitute the grounds of organisational action, inspect or review social actors' conformity to them, and manipulate sanction in an attempt to influence future behaviour (Scott & Meyer, 1994). Regulative institutions work through coercive pressures imposed by regulatory regimes that directly influence firms (DiMaggio & Powell, 1983). Failing to comply with regulative pressures can incur sanctions from the relevant institutional agencies and result in loss of earnings, a damaged reputation, or even a threat to the survival of the organisation.

    Institutional constraints imposed upon organisations from regulative institutions mainly work through coercive forces, directly influencing behaviour of organisations (Dimaggio & Powell, 1983). In the case of regulating the relationship between business and the natural environment, the concept of environmental protection has been well accepted and institutionalised into laws and regulations regarding environmental protection in most economies (Cagatay & Mihci. 2006; Ulph & Valentini, 1997). By imposing and enforcing these environmental laws and regulations, governments aim to control firms' behaviour related to environmental...

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