Understanding the Role of Government and Buyers in Supplier Energy Efficiency Initiatives

• Author: Ryan Schuchard,Lisa M. Ellram,Zhaohui Wu
• Date: 01 April 2014
• DOI: http://doi.org/10.1111/jscm.12044
• Published date: 01 April 2014

UNDERSTANDING THE ROLE OF GOVERNMENT AND

BUYERS IN SUPPLIER ENERGY EFFICIENCY INITIATIVES

ZHAOHUI WU

Oregon State University

LISA M. ELLRAM

Miami University

RYAN SCHUCHARD

Business for Social Responsibility (BSR)

In environmental management, companies must respond to myriad needs

and pressures from stakeholders such as buyers, regulators, communities,

and NGOs. While researchers recognize that these stakeholder entities

have different saliency and influences over a focal firm, the influences

from multiple stakeholders are often aggregated as a single factor, over-

looking differences among them. Stakeholders may have competing

demands: A buyer may consider only potential environment-cost

trade-offs, while the government balances the environment, increased

cost-competitive manufacturing and job creation. Such demands compete

for the same resources within the supplier’s organization, forcing suppli-

ers to satisfice and compromise. This study qualitatively examines Chinese

suppliers’ responses to requests to adopt energy efficiency (EE) initiatives

in their production plants by two of their most critical stakeholders: buy-

ers and the government. We identify three categories of EE initiatives

implemented by the suppliers and find that their implementations are

contingent on their ownership characteristics and value alignment with

these two stakeholders. Further, we find that suppliers interpret buyers’

motives regarding EE in the context of buyer–supplier relationships and

environmental positioning of the buyers’ products. These findings are

articulated in a set of propositions that are introduced based on our

analysis of these case study data.

Keywords: stakeholder theory; energy efficiency; buyer–supplier relationship; govern-

ment influence; environmental decision-making; sustainability, case study; supply

management; China

INTRODUCTION

Over the past three decades, rapid economic devel-

opment in China has created a strong export-oriented

manufacturing sector, the so-called world factory

(Zhao, Flynn & Roth, 2007), supplying consumer

goods to Western buying firms (buyers henceforth).

This world factory comprises both state-owned enter-

prises, and private- and publicly traded companies

founded by entrepreneurs from the mainland, Taiwan

and Hong Kong (HK). As the Chinese economy is

transitioning from a planned economy to what is

termed state capitalism, the division of power (legisla-

ture, executive and judiciary) is primitive and evolving

(Luo, 2007). In environmental management, the cen-

tral government establishes policies and enforces them

with varying rigor.

When it comes to managing energy efficiency

(EE), suppliers face a unique challenge involving two

Acknowledgments: We thank the firms and numerous managers

who generously devoted their time to participate in this study.

We also acknowledge and thank Sherry Ma, Fengyuan Wang,

and many of their colleagues at BSR for introducing the buyers

and suppliers and coordinating our field visits in China.

Volume 50, Number 284

issues. The first is that energy waste is different from

other waste, such as toxins released from a factory.

While most energy production creates greenhouse

gases, the use of energy is not treated like a direct

form of pollution with clear regulation and compli-

ance mandates. Chinese manufacturers focus primarily

on Scope 1 emissions and do not view energy usage

as a form of pollution (Zhang, 2013).

1

Likewise, buy-

ers classify their suppliers’ EE as a Scope 3 carbon

emission and thus a greenhouse challenge in their

extended supply chain, where carbon counting is still

a new agenda even for proactive buyers.

The second issue is the competing motives of their

critical stakeholders, the buyers and the government,

when they demand EE. On the one hand, EE can

reduce cost and greenhouse gases. On the other hand,

it may require resources and investment that have no

immediate financial benefits and stymie regional eco-

nomic development by raising production costs.

Thus, suppliers have to interpret what the govern-

ment and buyers want and how to incorporate these

demands into business decisions. Stakeholder theory

researchers differentiate and categorize stakeholders

based on power, legitimacy and urgency (Mitchell,

Agle & Wood, 1997). While stakeholder analysis

recognizes differences among stakeholders, there is

limited investigation as to how these differences affect

an organization’s environmental actions. For instance,

in empirical studies, researchers often aggregate stake-

holder influences and treat the combined impact as a

single indicator (e.g., Agle, Mitchell & Sonnenfeld,

1999; Sarkis, Gonzalez-Torre & Adenso-Diaz, 2010).

They typically consider stakeholders as having a

coherent and unified agenda, simplifying the reality

that a focal firm must deal with competing demands.

Even though awareness of and ability to strategically

manage the demands of multiple stakeholders is

important to organizational success, existing studies

overlook how focal firms’ environmental actions vary

as they interpret stakeholder demands.

In this study, we examine the EE initiatives of Chi-

nese suppliers. This setting offers an opportunity to

explore a more nuanced understanding of stakeholder

influence and ensuing environmental actions of the

focal firms. It also has practical implications due to

the severity of carbon emission in China and other

emerging economies that compete with China as

manufacturers of the world. Our objective is to expand

the application of stakeholder theory by exploring

the complexity of buyers’ and the government’s

multidimensional demands, and in doing so, identify

factors affecting suppliers’ implementation of EE ini-

tiatives, thus providing buyers with practical guidance

to understand suppliers’ motives in tackling Scope 3

environmental challenges.

We take a qualitative approach to explore how sup-

pliers in China adopt EE initiatives in their manufac-

turing operations. More specifically, we examine the

following:

1 What motivates suppliers to pursue EE objectives?

2 What affects the influence, if any, of the govern-

ment and Western buyers in suppliers’ pursuit of

EE initiatives?

3 What types of actions do suppliers take in pursu-

ing EE, and why?

LITERATURE REVIEW

Energy Efficiency Management and Chinese

Policy

For purposes of this research, EE initiatives are

efforts to conserve energy used in production and

improve the productivity of energy as an input.

Amory Lovins (1976) pointed out that increasing EE

is one of the most effective ways to solve resource

shortages and environmental challenges, because most

of the energy produced is wasted in generation, trans-

mission and distribution. In recent years, supply chain

programs such as the Carbon Disclosure Project are

demanding that suppliers report and reduce green-

house gases (Plambeck & Denend, 2011). For many

Western buyers with heavy reliance on Chinese manu-

facturing operations, managing Chinese suppliers’ EE

is becoming a crucial element of their supply chain

environmental sustainability initiatives.

Furthermore, governments and companies view EE as

a measure of a country’s productivity and competitive-

ness and a strategic resource management issue (Bell,

Autry, Mollenkopf & Thornton, 2012; Krautkraemer,

1998). China is the world’s largest carbon emitter and

also has lower EE performance than all major devel-

oped countries (Hayes, Young & Sciortino, 2012). As

coal supplies 70 percent of China’s total energy con-

sumption (EIA, 2012) and manufacturing is a primary

energy consumer, EE is considered an important eco-

nomic, social and environmental development initia-

tive by the Chinese central government. From an

economic standpoint, energy shortages in the summer

months slow or stop production, hindering regional

output. As a social and environmental issue, increasing

pollution and fatal accidents in coal mines have created

a public health crisis and social unrest as citizens pro-

test the lack of transparency in government reporting of

both air quality and the loose control of coal mine

operations (Economist, 2012).

1

Scope 1 emissions are direct pollutants emitted by an owned

manufacturing process; Scope 2 emissions are emissions from

owned transportation and employee commuting, while Scope 3

emissions are everything else, including emissions from pur-

chased electricity, purchased materials and components and

product usage (Ellram & Tate, 2013).

April 2014

Energy Efficiency

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