Strategic positioning, firm resources and adoption of proactive environmental practices: evidence from manufacturing firms in China.

Author:Wenwei, Li
Position:Report - Survey
 
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  1. INTRODUCTION

    Formation of environmental strategy by firms has received significant academic attention in the last decade (e.g. Aragon-Correa and Sharma, 2003; Bansal, 2005; Child and Tsai, 2005; Christmann, 2000; 2004; Christmann and Taylor, 2001; Lin and Ho, 2011; Marshall et al., 2010). While green practices are welcomed by the public and society, business managers need to identify the circumstances in which proactive environmental management would generate both benefits for the public and profits for the business. It has been suggested that a correlation between proactive environmental strategy and competitive advantage would become a strong driving force of green environmental initiatives, as gaining competitive advantage in market competition would provide incentives in motivating firms to go beyond mere compliance with stakeholder pressure (Child and Tsai, 2005; Christmann, 2000; Orsato, 2006). Furthermore, a number of studies suggest that a resource-based view provides a useful foundation for understanding how firms are able to mobilise their resources to influence their business performance through adaptation of environmental practices (Aragon-Correa and Sharma, 2003; Bansal, 2005). However, there is only limited research applying both a strategic behaviour approach and resource-based view to the decision-making in adoption of proactive environmental practices and to the authors' knowledge, no such research has focused on the manufacturing industry in an emerging economy.

    This paper intends to contribute to the literature in two significant ways. First, by employing a multi-theoretical perspective through combining the strategic behaviour approach and a resource-based view, this paper develops a theoretical framework to address the relationship between a company's strategy in managing its business-natural environmental interface on the one side and its competitive advantage on the other side. Second, the multi-theoretical framework is used to examine the potential effects from different motivating factors on a firm's proactive environmental practices in the research context of manufacturing industry in China as a leading emerging economy.

  2. THEORY AND HYPOTHESIS DEVELOPMENT

    Facing the task of managing the interface of business operations and the natural environment, a firm can take different strategies, ranging from reactive to proactive. While a reactive strategy is compliance to environmental regulations and stakeholder pressure, involving pollution control measures; a proactive strategy requires anticipation and adaptation to future regulations and social trends, emphasising pollution prevention measures (Aragon-Correa, 1998; Aragon-Correa and Sharma, 2003). In this study, the strategic behaviour approach and resource-based view are integrated to develop a theoretical framework to examine motivating forces for adoption of proactive environmental practices. The strategic behaviour approach focuses on strategic intent of managers in gaining strategic advantage over competitors through adopting proactive environmental practices. The resource-based view looks at the role and influence of a firm's resources and capabilities in adoption of proactive environmental practices.

    2.1 The Strategic Behaviour Approach to Adoption of Proactive Environmental Practices

    Many studies use a strategic behaviour approach to investigate the relationship between adoption of proactive environmental practices and competitive advantage, as this approach provides a strong theoretical foundation for investigating motivating forces in adoption of proactive environmental practices. Porter and van de Linde (1995) suggest that both generic types of competitive advantage could be achieved through firms' adoption of proactive environmental strategy. While all companies are under pressure from internal and external stakeholders to improve their environmental performance, only the first movers in adopting proactive environmental practices are likely to transform environmental investments into competitive advantage (Orsato, 2006). Therefore, a strategic positioning of issues in environmental management becomes the determining force for firm's adoption of proactive environmental practices, which are in turn influenced by managers' values and principles, and managerial interpretation of environment issues as a threat or an opportunity (Branzei et al, 2004; Ramus, 2005; Ramus and Seger, 2000; Sharma, 2000). Strategic behaviour approach and its constructs of managerial initiative, expected competitive effects and managerial interpretation are utilised in the examination of motivating forces in managerial decision to adopt proactive environmental practices.

    Managerial initiative. Adoption of proactive environmental practices requires extra resource commitment from the firm, thus increasing operational complexity for the firm and intensifying the risk facing its managers (Sharma, 2000). Whether or not to commit the required resources to proactive environmental practices is a strategic decision facing managers. Strategic management theory suggests that managers will determine the priority in paying attention to particular events while ignoring others and that this prioritising in turn will influence the actions the firm will take (Dutton and Jackson, 1987). Facing the challenge of prioritising, managers' attitudes and initiative towards proactive environmental practices would influence their decision-making in the strategic choice (Cordano and Frieze, 2000; Flannery and May, 2000). As ecological and social responsibility become increasingly important to the society, managers' values and perceptions on environmental issues would be shaped by the dominant norms of the society towards environmental protection, which in turn would generate positive managerial initiatives a firm's environmental management (Branzei et al., 2004; Child and Tsai, 2005). On the other hand, adoption of proactive environmental practices requires high resource commitments from the firm. Managerial initiative towards this adoption by the management team, especially top management, will be essential, because such an initiative will justify utilisation of resources in the adoption of proactive environmental practices. With support from firm management, required resources will be more easily available and employees will be better encouraged. Thus, the following hypothesis is proposed:

    Hypothesis 1. Managerial initiative toward environmental management will be positively associated with adoption of proactive environmental practices for manufacturing firms operating in China.

    Expected effects. The strategic behaviour approach suggests that firms are motivated to adopt proactive environmental practice by the strategic choice towards harnessing long term competitive benefits over their competitors (Reinhardt, 1998). Research has compared the differences and similarities between environmental management and quality management in terms of their relationship with firm competitiveness (Claver-Cortes et al. 2005; Orsato, 2006). The difference in this relationship between environmental and quality managements lies in the transferability of firms' investments into their products and services. For quality management, firm investments can be transferred to products and services, and effects of quality management become a private profit. For environmental management, firm investments cannot be transferred to products and services and the effects of environmental management tend to be a public good. This difference explains why many firms are reluctant to go beyond compliance with environmental laws and regulations in environmental management (Orsato, 2006). However, it is also suggested that there is a similarity between environmental and quality management in their relationship with firm competitiveness. This similarity lies in the tendency that investments in both management systems would generate positive effects of competitive advantage (Claver-Cortes et al., 2005). Although not being embedded in the products or services, a firm's adoption of more ambitious and thus proactive environmental practices can be acknowledged by the general public and eventually differentiate itself from its competitors as well as generate some competitive advantage. Empirical findings suggest that the integrated environmental strategy is likely to have positive competitive outcomes for a firm, including enhancement of public image of the firm and its products, improvement in relationship with internal and external stakeholders (Del Brio et al., 2005). These expected effects in terms of competitive advantages will influence consumers' shopping behaviour and produce private profits for the firm. Thus:

    Hypothesis 2. Expected effects from environmental management will be positively associated with adoption of proactive environmental practices for manufacturing firms operating in China.

    Managerial interpretation. In examining decision-making process in terms of environmental strategy, Sharma (2000) and Branzeil et al. (2004) suggest that managerial interpretation and cognition of environmental management issues significantly influence decision in adopting proactive environmental practices. A proactive environmental strategy represents a consistent pattern of actions taken by a firm to reduce environmental impact of its...

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